Petition for Writ of Certiorari — Richards v. Lloyd's of London
Supreme Court brief1998
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9ZLZ79 mys 1998
No. 97- OFFICE OF THE CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1997
ALAN RICHARDS, ET AL.,
JOHN R. NORTON, III, ET AL.,
y Petitioners,
LLOYD’S OF LONDON,
AN UNINCORPORATED ASSOCIATION, ET AL.,
Respondents.
On Petition for a Writ of Certiorari to the
United States Court of Appeals for the Ninth Circuit
PETITION FOR WRIT OF CERTIORARI
Stephen A. Kroft Eugene I. Goldman
Counsel of Record Robert E. Kohn
McDermott, Will & Emery McDermott, Will & Emery
2049 Century Park East 600 13th Street, N.W.
Los Angeles, CA 90067-3208 Washington, DC 20005-3096
(310) 277-4110 (202) 756-8000
Counsel for Petitioners
i
QUESTIONS PRESENTED FOR REVIEW
1. Whether courts may create a judge-made exception to
the unambiguous anti-waiver provisions of the federal securities
statutes in order to enforce contractual forum-selection and
choice-of-foreign-law clauses that, in tandem, operate to waive
compliance with the federal securities laws by foreign
enterprises in connection with their offer and sale of securities
in the United States?
2. Whether, quite apart from the securities anti-waiver
statutes, public policy permits a foreign party to enforce
contractual forum-selection and choice-of-law clauses that
prospectively waive the statutory remedies of United States
residents for federal securities law and RICO violations
committed by the foreign party in the United States?
3. Whether a district court may enforce contractual
forum-selection and choice-of-law clauses that a defendant
inserted in the contract for the purpose of insulating itself from
claims under United States law for its fraud in obtaining
millions of dollars of plaintiffs’ investment capital?
‘3
LISTING OF PARTIES
I. Parties on Petition for Certiorari
A. Petitioners from Richards, et al. v. Lloyd’s of London, et al.,
No. 95-55747 (9th Cir.)
Alan Richards Emil R. Borgers
John Hillel Abeles Daniel E. Boyle, Jr.
Carl H. Almond Patricia A. Boyle
Kirk A. Anderson Charles M. Brady
Edith Anthoine Frank J. Brinkman
V. Snowden Armstrong _ Walter T. Bross
C.L.G. Ashby Bernard M. Brown
Howard Asher Charles B. Brown
Drew N. Bagot Marilyn E. Brown
Joseph Edward Baird James Edgar Broyhill
Alan L. Baker Irvin L. Burke
A. Verne Ballard Garrett Steven Butler
Norman Clifford Barnhart John David Butler
Joseph Barth Raymond Thompson Butler
Hope Bassett Thomas J. Butler
Lynn Hope Bassett Grant R. Caldwell
Sterling Bassett John T. Calvello
Elizabeth S. Bencsics Alexandra E. Carter
Wallace Reed Bennett John A. Carter
Alfred J. Berger, Jr. Julie M. Carter
: Christy S. Berkos Stephen E. Carter
James E. Bertelsmeyer Thomas George Chase, Jr.
Charles W. Bila John J. Cirigliano
Hal Oscar Binyon, III Harry Jackson Clark
John E. Binyon William J. Cleary, Jr.
Albert Rolfe Black Boris Cohen
Dorothy Jean Wade Black Thomas H. Collins
Maureen A. Black Elizabeth Simonds Cook
Robert C. Blackwell Shirley M. Cook
Gregory P.B. Boardman Paul Russell Cory
siti
Daniel F. Coughlin
John M. Courtney
Dale W. Cox
John C. Danloe
Patricia A. Danloe
Charles C. De Bruler
Donald D. Decenso
James R. Dickson, Jr.
L.I.M. L. Dilaurenti
David Dolgenos
Robert H. Duenner, Jr.
Albert W. Dugan
Lydia Ann Pate Dugan
C. Edward Dunn
Thomas N. Durdin
Minna J. Edelman
Albert T. Ehringer
Ann Graham Ehringer
L. James Ellsworth
Austin Harold Evans
Arlene J. Fisher
Mary O. Floyd
Vaun T. Floyd
Janet Voth Foote
Robert S. Forman
T. Lewis Fowler, Jr.
H.G. Frost, Jr.
Robert W. Fuerst
Calvin P. Gaddis
Joseph Melvin Gagliardi
Charles M. Gaitz
J.P. Garlington, Jr.
Thomas D. Gettler
David L. Gillette
Patrick G. Gleeson
Leonard A. Goodman, Jr.
Marvin Goodson
iii
Katherine B. Goodwin
Harry W. Gorst
Carolyn M. Grace
Lorraine G. Grace
Oliver R. Grace, Jr.
Fred G. Graeber
Francis William Seafield
Grant
J. Allen Gray
Jack D. Gray
Michael Green
Milton Jere Green
Robert K. Greenfield
Jack P. Gross
Kenneth Gross
Todd Gross
Sterling N. Hamill
John W. Handy
Wells P. Hardesty
Hord Hardin, II
Clay Daulton Hatch
Thomas J. Hawkin
Elizabeth Drane
Haynsworth
Stuart G. Haynsworth
William Guy Heckman
Robert M. Heidenrich
John Robert Hertel
Robert F. Hetzel
James Milton Higbee
Morris Himmel
Barth Hoogstraten
Roger W. House
James M. Huebner
Page Hufty a.k.a.
M.R. Page Hufty
or M.R.P. Hufty
Page Lee Hufty
Richard F. Hull
Carey Lee Hyatt, personal
representative for Estate
of William C. Snyder, Jr.
Lloyd E. Innerarity
George Jackson
Howard Johnson
H. Gilbert Jones
Maxwell Kaufer
Patrick J. Kearney
Daniel G. Keating
Charles James Keenley
Stephen F. Keller
George Kemble
Dennis J. K.snny
Judith P. Kenny
William Dobson Kilduff
Frederick L. Kitchens
Walter A Klein
Roger A. Kozberg
Ronald E. Krebs
James R. Kruse
E. Michael Lallinger
Jane E. Lamb
Clifford P. Lane
Stewart F Lane
Albert W. Lawrence
James C. Lawson
Richard B. Leavitt
Raymond C. Lee
Francis Hufty Leidy
Elizabeth M. Levy
Mark I. Levy
Frank FS. Lin
Thomas O. Lind
Donn H. Lipton
Edwin Robert Loder
Jeanne Long
Robert Kramer Lowry
Ann S. Lucas
Herbert Lester Lucas, Jr.
John Clark Lucas
William Boughton Lucas
Richard D. Lueker
Lloyd Lynd, Jr.
Barbara Lyons
Janis L. Macmillan
Thomas E. Malone
Lawrence R. Marlborough
Donald D. Martin
Willa H. Martin
Steven A. Marx
Meade M. McCain, Jr.
William E. McCaleb
William Joseph McClendon
Patricia McFate-Johnson
Martin E. McGonagle
James A. McKellar
James A. McKellar, Jr.
Richard Donnel McKenzie
Timothy R. McLaughlin
Paul Wilson McMullan
John W. McMurray
Allison R. Mercer
Koppel Miller
James R. Modrall, II
Glenna Sue Killiam Moore
Joe Farnham Moore
John Jude Moran
Robert H. Morgan
Charles Edward Morris
Robert M. Morton
Edward Wallace Muir
J. Edmond Mullin
Patricia B. Murray
Richard W. Neu
Cynthia K. Norris
John Phelps Norton
Bettye Cypert Nowlin
Wade Taylor Nowlin
John E. O’Donnell
Lawrence W. O'Neill
Charles W. Ott
Scott Patten
Kent B. Petersen
Henry Jack Pfleger, Jr.
James Robert Phillips
John B. Piphorn
John Poley
James N. Price
Nelda A. Price
Royce Neil Price
Peter C. Reeves
William N. Reib
Richard A. Reinhart
Harold Gene Richardson
Ronald H. Riley
Richard Rinella
Robert J. Riordan
Robert Risher
Harry C. Roach
Eric W. Roberts
Raymond Rosenberg
Richard D. Rosenblatt
Bess Rubin
Jacqueline Rubin
Corrina Rucka
N. Michael Rucka
Charles C. Rush
Gregory J. Salko
Arthur Schechner
Barbara L. Schornack
John J. Schornack
Donald Schupak
lan A. Shapiro
John J. Shea
Lynda M. Shea
John F. Shettle, Sr.
Gillian Siemon-Netto
Uwe Siemon-Netto
Stephen H. Sills
Joseph H. Silversmith, Jr.
G. Gregory Smith
Margaret V. Smith
Philip C. Smith
William D. Sosby
Jared Walter Sparks
Harmon S. Spolan
Philip M. Sprinkle
Forney B. Stafford
Harry Christopher Starkey
Charles D. Statton
Gilchrist B. Stockton, Jr.
Christopher Edmund Visurs
Stockwell
John Herbert Sullivan
Robert B. Sumerel
Warren Martin Swanson
Robert Lynn Swisher
Mary Jacqueline Taylor
Sharon V.F. Taylor
Naomi Thomas
Robert Thomas, III
Terence W. Thomas
Ruthann Tilsley
Thomas W. Tilsley
Cynthia J. Todorovich
vi
Michael B. Todorovich E. Pomeroy Williams
Linda K. Treitel George Joseph Williams
Percy R. Turner Jean Trudgeon Williams
John P. Van DenBurgh Stephen J. Wilsey
H.S. John Webb, III Aubrey Linn Wilson
Eugene S. Wetmore Joan Burch Wilson
Richard James Whiteside Mary M. Wohlford
Earl D. Whittemore Theodore F. Wolff
John H. Wiggins James F. Young
Grant Wilkins Wilson M. Zildjian
David Samuel Williams Kenneth J. Zimmerman
B. Petitioners from Norton, et al. v. Lloyd’s of London, et al.,
No. 95-56467 (9th Cir.)
John R. Norton, III James H. Kayian
Delmar A. Brady Joanne S. Kayian-Olooney
Samme Jo Brady Suzanne Kayian
Robert Flesvig Francis J. Milc~
Michael C. Hirsh Doris S. Norton
Harold Franz Ilg Ray Morse Sanderson
R. William Johnston Warren G. Vander Voort
C. Respondents
Liloyd’s of London, an unincorporated association;
Corporation of Lloyd’s, a.k.a. Society of Lloyd’s, a.k.a. Society
and Council of Lloyd’s.
Il. Additional Parties in the Proceedings Below
A. Parties from Richards, et al. v. Lloyd’s of London, et al.,
Mo. 95-55747 (9th Cir.)
S. Acquafredda Frank A. Baer, II
Herbert Allen Ian S. Baker
Laurance Hearne James W. Bayless
Armour, Jr. Angela Brooke Beauchamp
Michael John Beauchamp
Ralph Bendhem
Helen G. Bennett
Herbert Berkeley
Eileen Bidwell
Roy W. Bidwell
Mads B. Bjerre
William E. Blackaby
Allan S. Blank
Andrew D. Blank
Charlotte S. Blank
Debbie Jo Blank
John L. Blaustein
Julian Blaustein (Dec’d)
Max Blumberg
Jarold W. Boettcher
Andrew C. Bossom
Gordon D. Boyd
Llewellyn Boyd
John C. Bray (Dec’d)
Thomas Mitchell Broyles
James Ewers Burden
John J. Burke, Jr.
Richard Alan Cahill
Edwin J. Calabrese
Emily N. Carey
Richard D. Castle
Gasper C. Celauro
Kenneth R. Chiate
William R. Clardy
George Bomer Clark
Jesse Coates, Jr.
Peter James Cook
Thornton Cooke
William P. Cowgill
Daniel M. Crawford
Harry Arthur Crawford
Vii
Cyril Richard Deane
James S. Deely
John R. Dougery
Richard Dranitzke
James Duffus
Thomas Henry Edwards
Francine Ehrlich
Lee Ross Ellenburg, Jr.
Frederick J. England, Jr.
Jules I. Epstein
Roy Edwin Erickson
Richard M. Fairbanks, III
Victor R. Fernitz
Elliot J. Fishman
Martha H. Fogelman
Robert F. Fogelman
Walter G. Franz, Jr.
Arthur James Gallagher, Jr.
Phil C. Gallagher
Diane R. Garesche
Edmond A.B. Garesche, III
Vere E. Gaynor
A. Edward Gianelli
Paul G. Giddings
Karole E. Glaser
Gary D. Green
Bette Lou Griffith
Daniel Gross
Steven I. Gross
Glen Owen Grossman
Jacob Grossman
Richard J. Guggenhime
Margot L. Gumport
Rc!f McMillan Gunnar
George Leon Hagen
Gerald Hamburg
Marvin R. Hamburg
John David Cameron
Hardie
Richard L. Harrington
Charles M. Hart
David Eugene Hart
Michael C. Hartley
Penelope B. Hatch
Olivia Pollard Hayes
Charles Donald Hebard
James Taylor Henderson
Luther Andrews Henderson
Stanley M. Herzog
Robert H. Hilb
G. F Steedman Hinckley
Jay D. Hirsch
Carolyn Estelle Hoffman
Parker M. Holt
William S. Huff
Elise Heckman Hughes
Alan J. Hunken
Clifford J. Hunt
S.R. Hurwitz
Donald E. Jeffers
Susan M. Jennings
Verner C. Jordan, Jr.
Alfred Kahn, III
Stanley F. Kaisel
Byron C. Karzas
Kathryn S. Keating
John G. Keleher
Donald K. Kelly
Maxine Rudolph Kemble
Kenneth L. Kerr, Jr.
John Henry Klein
Paul G. Knouse
Clarence D. Knutsen
Lisa W. Larson
viii
Raymond H. Laub
Jean Fox Lee
Robert A. Leef
Amneris G. Levy
Douglas Brian Lloyd
Eugene C.J. Lohman
Godfrey M. Long, Jr.
David Lubetsky
Stewart Emig Lucas
Frank E. Luellen, Jr.
Weymun I. Lundquist
Barbara Lunnen
Carol J. Lupke
Duane E. Lupke
James Arnold Maggetti
Jack Lee Mandeville
J.S. Marks
Mary Lynn Marks
Donald E. Martin
J. Douglas Martin
Virginia W. Martin
David Maubry (Dec’d)
W. Richard Maudsley
David W. Mayne
James L. McCormick
William Thomas
McCormick, Jr.
Sam E. McDonald, Jr. |
William Stokes ,
McIntyre, [V |
Henry E. McLaughlin
Robert P. McNeill
Donald Homer Mehlig
James R. Meier
Ralph N. Mendelson
Alexander Franz Metherall
Norman Nelson Mintz
ee Se
James Thomas Mitchell
Thomas Edward Moore
Marilyn Morgan
Willa June Morgan
William Robert Morgan
Dwight H. Murray, Jr.
Thomas J. Murtagh
James Arthur Myers
John L. Neu
Douglas B. Nichols
George William Nordhaus
Katherine C. Nordhaus
Bertraim Spagat
Nusbaum, Jr.
Eugene Oberdorfer, II
Jerry Odell
William C, O’Donnell
Martin T. Orne
Mary Claire Pollard Parker
Rosemary H. Pasek
Alexander Evans
Patterson, Jr.
Mary McPherson Patterson
George Pavloff
David L. Payne
Willliam L. Pearson
Judith N. Perrin
John Franklin Peterson
Milton E. Pick
John H. Pietri, Jr.
Henry P. Plenk
Otis Miles Pollard, Jr.
Otis Miles Pollard, III
Donald Porter
Neil R. Pouppirt
Ben Olyn Price
M. Charles Price
ix
Laurie E. Price-Hittesdorf
Audrey Nelson Quast
Maurice Leo Quinn
Clifford Walker Rackley
Julia O. Rackley
Fred H. Ramseur, Jr.
Cecil Y. Ray, Jr.
Albert Reider
Victor Albert Rice
Leon Michael Rodger
Lois S. Rosenblatt
Lioyd A. Rowland
Angela Rubin
Philip D. Rupert, Jr.
George V. Rusu
Thomas J. Ryan
Elsie Cory Sadler
Nicolas Miklos Salgo
James Clements Sanders
Charles Sapp
Edwin A. Sawin, Jr.
(Dec’d)
Leroy J. Schaetzel
Victoria Jean Scott
Richard T. Scully
Robert W. Selig, Jr.
Robert S. Seltzer
Nancy B. Severance
Raymond Shaheen
Antonio J.L. Simoes
Alan Paul Smith
Bernard Smith
Edward J. Smith
Frederic M. Smith
Gerard C. Smith
Dale H. Sore on
Walter T. Sorokolit
Robert E. Spivak
Hugo John Standing
Stephen C.S. Stephano
(Dec’d)
Jeffrey Alexander Stevens
Ronald Stevens
David E. Stokes
Richard P. Stovroff
Allen Howard Stowe
Lloyd N. Strosnider
' Michael Bryant Stubbs
Philip Glen Studarus
Herman Getzie Sturman
George Ellis Summers
H. Meade Summers, Jr.
Robert F. Sykes
Kenneth M. Taylor
Thomas A. Taylor
Paul Tessel
Richard D. Teubner
James Parker Thrasher
Patricia M. Thurber
James A.Torrey
John Poindexter Tottenhoff
Ronald K. Travis
T.L. Treadwell, III
Alvin S. Trenk
Stephen Douglas Tuck
Maria de Montague
Ulvestad
Glenn Sam Utt, Jr.
Kirsten Alida Vanden Brul
Dennis Douglas Van Der
Meer
David R. Walker
Catherine S. Walsh |
Jessica W. Warren ;
David Keith Watkiss
(Dec’d) i
Carlton D. Weaver
Charles J. Webb, II
Marsha M. Wedell
Julia M.W. Weil
Charles Wellborn
George H. Wells
William H. Wenzel
Bradford K. Werner
Burton K. Werner
Cynthia C. Werner
Johanna H. Werner
Robert Wertheim
Najja Hassen White
Thomas R. Wiener
John Richard Windebank
Charles M. Wood
Charles T. Yarington, Jr.
John Nicholas Zefkeles
Robert Zildjian
Daniel E. Ziskin
xi
B. Parties from Norton, et al. v. Lloyd’s of London, et al., No.
95-56467 (9th Cir.)
Claude W. Bailey (Dec’d) Richard C. Henry
Peter Beck Theodore Kosloff
Charles G. Bentzin Lowell Conrad Lundell
Frederick M. Binkley Glen R. Mogan
George Manning Close Melanie M. Norton
Russell M. Collins, Jr. Judith M. Ott
Peter L. Dwares H.E. Rainbolt
Donald P. Gallop David L. Rosenblatt
Charles A. Gerlach, Jr. Claire M. Tillman
Robert William Gerwig Joseph F. Weller
John C. Griffin
xii
CONTENTS
Page
QUESTIONS FRUBSNSD oc csc deans eis i
LEST aes Ol MODs 66 6 ook kic basse ake shares ii
I. Parties on Petition for Certiorari .............. il
A. Petitioners from Richards, et al. v. Lloyd’s of
London, et al., No. 95-55747 (9th Cir.) ...... ii
B. Petitioners from Norton, et al. v. Lloyd’s of
London, et al., No. 95-56467 (9th Cir.) ...... vi
CPN soos ska eee Ve es oes eens vi
II. Additional Parties in the Proceedings Below...... vi
A. Parties from Richards, et al. v. Lloyd’s of
London, et al., No. 95-55747 (9th Cir.) ...... vi
B. Parties from Norton, et al. v. Lloyd’s of
London, et al., No. 95-56467 (9th Cir.) ...... xi
TA Cr Cts 8 en ak as ba ds CRO Es xii
TABLE OF AUTHORITIES CITED. .............. xv
OPINIONS AND ORDERS ENTERED BELOW .... 1
STATUTORY PROVISIONS INVOLVED .......... 1
FE 5 CEE V eo RRS eee i EOS 2
STATEREGNT OF THE CASE o.oo kc cececccees 2
I. Lloyd’s Fraudulent Offers and Sales of Securities
eg SEI es Pee eee 3
II. The Forum-Selection and Choice-of-Law Clauses. . 5
Sak. TUDOOME TO ica sok be aes ner cecees 5
xiii
REASONS FOR GRANTING THE WRIT..........
I.
The Court Has Not Settled the Questions
Presented, and Should Address Those Questions
A. The Court’s Precedent Leaves Critical Issues
Un. ns ss
B. Resolving The Questions Presented Will Bring
Certainty and Predictability to Federal Court
Proceedings Far Beyond the Parties and
Transactions Involved Here ...............
The Ninth Circuit’s Refusal to Apply the Anti-
Waiver Statutes Conflicts with This Court’s
EE a Ore en ae
A. This Court’s Decisions Preclude A Judge-
Made Exception to the Anti-Waiver Statutes. .
B. The Ninth Circuit’s Refusal to Enforce the
Anti-Waiver Statutes Conflicts with This
Court’s Decisions in McMahon and Rodriguez,
eee
The Lower Courts Misunderstand This Court’s
Public Policy Standards for Enforcing Forum-
Selection Clauses under Bremen, As Explained By
ESE EE
The Ninth Circuit’s Fraud Holding Conflicts With
This Court’s Moseley Decision, And With The
Application of Moseley By the Sixth Circuit ......
Bd a ie oS o's vil als M6 Sas oe
A. Opinion, Richards v. Lloyd’s of London, 135 F.3d
izep Oem Cir. 1998) (em banc) ................
Be a,
ig
Order Staying Mandate Pending Petition for
Certiorari, Richards v. Lloyd’s of London, Nos.
95-55747, 95-56467, slip op. (9th Cir. Feb. 25,
| GAO PEP SERGE GRE PEG te en are 24a
Opinion, Richards v. Lloyd’s of London, 107 F.3d
1422 (9th Cir. 1997), withdrawn 135 F.3d 1289 (9th
Ce. Fe TU MS wo 5 ck ees Wao oes AN vee 26a
Order Granting Defendants’ Motion to Dismiss
and Dismissing Plaintiffs’ Motion to Disqualify
Defense Counsel as Moot, Richards v. Lloyd’s of
London, No. 94-1211-IEG (POR), slip op. (S.D.
Cal. WEES Smee os es Fa is cea ass 54a
Order Denying Plaintiffs’ Motion for Relief from
Order; Reconsidering and Denying Plaintiffs’
Motion to Disqualify Defendants’ Counsel;
Denying as Moot Plaintiffs’ Motion for Entry of
Default, Richards v. Lloyd’s of London, No.
94-1211-IEG (POR), slip op. (S.D. Cal. Aug. 4,
INS) sie EA A eS 76a
Stipulation and Order, Norton v. Lloyd’s of
London, No. 95-0952-IEG (AJB), slip op. (S.D.
Col. Seat: 25; 2999) ss etic gs eas eas 84a
Disclosure and Anti-fraud Provisions Securities Act
OR FD Sask ee Ne ee a 87a
Anti-fraud Provisions . 2curities Act of 1934...... 9la
Controlling Person Liability Provisions Securities
Act of 1933 Securities Exchange Act of 1934 ..... 93a
Definition of Terms Securities Act of 1933
Securities Exchange Act of 1934............... 94a
RICO Civil Remedies Provision 97a
Brief of the Securities and Exchange Commission,
Amicus Curiae, Richards v. Lloyd’s of London, Nos.
95-55747, 95-56467 (9th Cir. May 5, 1996) ....... 98a
Page(s)
CASES
Alberto-Culver Co. v. Scherk, 484 F.2d 611
(7th Cir. 1973), rev’d, 417 U.S. 506 (1974) ............ 19
Allen v. Lloyd’s of London, 94 F.3d 923
(4th Cir. 1996), mandamus denied sub
nom. In re Allen, 138 L. Ed. 2d 1004
(Go 18, 24
Ashmore v. Corporation of Lloyd’s
OS i a Oe 5
Bonny v. Society of Lloyd’s, 3 F.3d 156
(7th Cir. 1993), cert. denied,
606 Gee a passim
Brogan v. United States, 118 S. Ct. 805
CU ees eb eV Ps aes CR es eves s bAee SS 17
Carnival Cruise Lines, Inc. v. Shute,
Mr ee, PONE es eee sk sce h ees tyes tenses 16
CBS Employees Fed. Credit Union v.
Donaldson, Lufkin & Jenrette Sec. Corp.,
Pie Bee cree (eek Ce: 1980) oo be eek es 13, 24-27
Connecticut Nat’l Bank v. Germain,
A ED nn ny bcs vac e canker es 17
Haynsworth v. Corporation, 121 F.3d 956
(Sth Cir. 1997), cert. denied,
US. ERME £5 ba eae ice eek 12, 18, 22, 24
Herman & MacLean v. Huddleston, 459
She IO CEE co Gah cae ACh ee cedwncoteeus 25
xvi
Itoba Ltd. v. Lep Group PLC, 54 F.3d 118
(2d Cir. 1995), cert. denied, 116 S. Ct. 702 ;
ROT 8 5s. 05 8 Ca eRe ee hE ha ees ee SK
Kotam Elecs., Inc. v. JBL Consumer Prods.,
Inc.,93 F.3d 724 (11th Cir. 1996) (en
banc), cert. denied, 117 S. Ct. 946 (1997). ..............
Lexecon Inc. v. Milberg Weiss Bershad
Hynes & Lerach, 118 S. Ct. 956 (1998) ............444.
M/S Bremen v. Zapata Off-Shore Co.,
an fH et EE A EE eA rr ees oe ee passim
Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614
Go) ee ey Pee rae TM Ge ty es I Ree! te ar passim
Moseley v. Electronic & Missile Facilities,
SUS WIM ee a es passim
Nghiem v. NEC Elec., Inc., 25 F.3d 1437
(9th Cir.), cert. denied, 513 U.S. 1044
CON gic ek oa ae Rk Rs ek sd cic ieee
Oubre v. Entergy Operations, Inc.,
LEB Ge Be Cee 8 oo ca 0 5 65 Ash ek ae eR
Prima Paint Corp. v. Flood & Conklin Mfg.
ee gt eB. os eee ero reer 13, 24,
Richards v. Lloyd’s of London,
[1995] Fed. Sec. L. Rep. (CCH) 4 98,801;
[1995] RICO Bus. Disp. Guide 7 8839 ................
Richards v. Lloyd’s of London, 107 F.3d
1422 (9th Cir. 1997), withdrawn 135 F3d
S709 OG GE. Bore Oe ooo oo i hee Se
Riley v. Kingsley Underwriting Agencies,
Ltd.,969 F.2d 953 (10th Cir.), cert. denied,
SOG UTS. TR Ss ha a os rs oe RS ees
xvii
Page(s)
Roby v. Corporation of Lloyd’s, 996 F.2d
1353 (2d Cir.), cert. denied, 510 U.S. 945
Syke ei ss ay we w aca 0% a we Ok passim
Rodriguez de Quijas v. Shearson/American
BE, SE Ee EE CEP soos Sk oe ek eae es passim
Scherk vy. Alberto-Culver Co.,
I RE bo ais oh dew hanes passim
SEC v. Chinese Consol. Benev. Ass’n,
120 F2d 738 (2d Cir.), cert. denied,
eis WOM CE 8s ig oe 9 0 0 6 Bb es sv es cece 20
SEC v. WJ. Howey Co., 328 U.S. 293
RU oe is 0a ek Niels ONG LAG hoes s kp sewsees 4
Shearson/American Express v. McMahon,
ee Ne OEE is a Ce eck Coc en ev stnes passim
Stewart Org., Inc. v. Ricoh Corp.,
IU Oe RR 6 ee Vk Wc ans oc des ak ou we 8, 12, 16, 18
United Hous. Found. v. Forman, 421 U.S.
RE So hay koa, Vere A ees coev en veh s 3-4
United States v. Rutherford, 442 U.S. 544
CN eS eo Wg bee ok a 4 ois As win ka ba to 17
Vimar Seguros y Reaseguros, S.A. v.
BEET Se PG DAD Woes DSO CATO) cw ceca csese passim
cin
STATUTES
Securities Act of 1933
1930 Act $ 2, IS VSR ET 6 i GES ES aS
1935 Act $5, 35 USL. SD TiO oi se oe eS passim
1933 Act § 718), 15 USL. § Tie) oe Nee es passim
1933 Act § 12(a), 15 U.S.C. § 77l(a) ....... 2, 5, 19-20
1933 Act § 14, 15 US.C.§ 77m... ce cee ccnes 1, 6
1958 Akt 4 OS TS GS FO ai ho ea 83 2, 20
1933 Ast § TM), 19 USCS TMA) ee eee 6
Securities Exchange Act of 1934
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RULES AND REGULATIONS
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LEGISLATIVE MATERIAL
United States Investors in Lloyd’s of London
Deserve Their Day in United States Court,
143 Cong. Rec. E1607 (daily ed. Aug. 1, 1997)
CES GC A. TINGS a a 5 oo es Eh ere ce eas vee 11
a
MISCELLANEOUS
Paul D. Carrington & Paul H. Haagen,
Contract and Jurisdiction, 1996 Sup. Ct. Rev.
REE CATO eg EOS E RUT REO EN EER seve ce eor ee 14
John C. Coffee, Brave New World? The
Impact(s) of the Internet on Modern Securities
Regulation, 52 Bus. Law. 1195 (1997) ............... 15
Jennifer M. Eck, Tiurning Back the Clock: A
Judicial Return to Caveat Emptor for U.S.
Investors in Foreign Markets,
19 NC. 3. intl L. & Com. Keg. 313 (1994)... ......... 14
David A. Fitzgerald, Note & Comment,
Allen v. Lloyd’s of London: A Comment on
Forum Selection, 30 Conn. L. Rev. 257 (1997) ........ 14
Darrell Hall, Note, No Way Out: An Argument
Against Permitting Parties to Opt Out of U.S.
Securities Laws in International Transactions,
BF I Ge I, PF RET hc rise re duce sacks: 14
G. Richard Shell, Res Judicata and Collateral
Estoppel Effects of Commercial Arbitration,
Tet ABklis Be ST. AE LAPMOE: croc cco ce viv wees ess 15
Chief Justice Fred M. VINSON, Work of the
Federal Courts, Address Before the American
Bar Association (September 7, 1949) in 69 S.
Oe a oe Cee te ee eke We Weekes 13
:
:
1
Petitioners respectfully petition fo. a writ of certiorari to
review the judgment of the United State: Court of Appeals for
the Ninth Circuit affirming dismissal of these actions based on
contractual forum-selection clauses that, in tandem with choice-
of-law clauses, waive Petitioners’ remedies under the federal
securities laws and RICO.
OPINIONS AND ORDERS ENTERED BELOW
The Ninth Circuit’s 8-3 en banc opinion (App. A, 1a-23a)
is reported at 135 F.3d 1289. The order staying the appellate
mandate (App. B, 24a-25a) is unreported. The Ninth Circuit’s
divided panel opinion (App. C, 26a-53a), withdrawn by the en
banc court, is reported at 107 F.3d 1422.
The district court’s decision in Richards v. Lloyd’s of
London (App. D, 54a-75a) is reported at [1995] Fed. Sec. L.
Rep. (CCH) 1 98,801; [1995] RICO Bus. Disp. Guide 9 8839.
That court’s post-judgment order in Richards (App. E, 76a-83a)
and its order in Norton v. Lloyd’s of London (App. F, 84a-86a)
are unreported.
STATUTORY PROVISIONS INVOLVED
Section 14 of the Securities Act of 1933 (the “1933 Act’)
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. Section 29(a) of the Securities Exchange Act of
1934 (the “1934 Act”) provides:
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.
15 U.S.C. § 78cc(a).
Sections 5, 7(a), and 12(a) of the 1933 Act are reproduced
in Appeudix G, 87a-90a. Section 10(b) of the 1934 Act and
Rule 10b-5 thereunder are reproduced in Appendix H, 91a-92a.
Section 15 of the 1933 Act and § 20(a) of the 1934 Act are
reproduced in Appendix I, 93a. Section 2(1), (7) of the 1933 Act
and Section 3(a)(10), (17) of the 1934 Act are reproduced in
Appendix J, 94a-96a. The civil remedies section of RICO,! 18
U.S.C. § 1964(c), is reproduced in Appendix K, 97a.
JURISDICTION
The en banc judgment of the United States Court of
Appeals for the Ninth Circuit, affirming the district court’s
dismissal of this case, was entered February 3, 1998. This Court
has jurisdiction under 28 U.S.C. § 1254(1).
STATEMENT OF THE CASE
These consolidated cases come to the Court on an
undisputed evidentiary record. Petitioners are individual
residents of the United States who were solicited — in the
United States — to buy passive membership interests in Lloyd’s
of London, an insurance enterprise based in England.? Upon
becoming members, Petitioners (called “Names” by Lloyd’s)
were further solicited in the United States to invest in insurance
syndicates run by Lloyd’s “Managing Agents,” placing at risk
Petitioners’ entire net worth to back any syndicate losses.
1 The Racketeer Influenced and Corrupt Organizations chapter of the
Organized Crime Control Act of 1970 (“RICO”).
? Petitioners sued two defendants: the Corporation of Lloyd’s, also known
variously as the Society of Lloyd’s and as the Society and Council of Lloyd’s
(the “Society”); and Lieyd’s of London, an unincorporated association
consisting of the Lloyd’s entities that manage the Lloyd’s insurance enterprise
(the “Unincorporated Association”). Together these defendants are referred
to herein as “Lloyd's.”
3
Lioyd’s did not tell the Names that Lioyd’s recruited them
in a fraudulent scheme to shift billions of dollars of expected
syndicate losses from Lloyd’s “insiders” to outside investors like
Petitioners. When those losses became imminent in 1986,
Lloyd’s induced Names to sign “General Undertaking”
agreements containing forum-selection and choice-of-law
clauses (“Choice Clauses”). See App. A, 3a-4a. Those clauses
require Petitioners to sue only in English courts, which would
not enforce any of Petitioners’ rights under United States law.
I. Lloyd’s Fraudulent Offers and Sales of Securities In thi: »
United States :
Lloyd’s solicited Petitioners in the United States to join
Lloyd’s and its syndicates.’ See App. A, 8a. ‘Members’ Agents”
within Lloyd’s, acting at the direction and control of the Society,
hosted sales presentations and organized face-to-face meetings
in the homes and offices of potential Names —- all in the United
States. Members’ Agents paid commissions and referral fees to
United States securities brokerage firms and hired other
recruiters in the United States to solicit new Names. Members’
Agents also annually travelled throughout the United States
encouraging Names to increase their underwriting in syndicates.
In short, “Lloyd’s purposefully devoted considerable time and
resources to recruiting American investors through specifically
American media.” En bane dissent, App. A, 18a. Lloyd's
disputed none of those facts.
Petitioners alleged, and the undisputed evidence showed,
that their participations in Lloyd’s constitute the purchase of
“investment contract” “securities” withia the meaning of the
securities laws.‘ Petitioners invested capital in the Lloyd's
3 See evidence cited in Plaintiffs’/Appellants’ Opening Brief (“Names’ Br.”)
10 and Plaintiffs’/Appellants’ Reply Brief (“Names’ Reply Br.”) 15, 23.
4 Section 2(1) of the 1933 Act defines the term “security” to include “any . . .
investment contract. . ..” 15 U.S.C. § 77b(1). Section 3(a)(10) of the 1934 Act
contains the same definition. 15 U.S.C. § 78c(a)(10). See, e.g, United Hous.
(footnote continues)
4
enterprise by posting letters of credit and other assets upon
joining Lloyd’s. Lloyd’s assessed levies upon Petitioners for a
Central Fund administered by Lloyd’s to cover the losses of any
Name that failed to satisfy his or her syndicate obligations.
Petitioners also invested in the Lloyd’s syndicates by pledging to
pay any syndicate losses. Lloyd’s Managing Agents managed
every aspect of the syndicates’ business; Lloyd’s prohibited
Names from participating in the operation of the syndicates.
Lloyd’s did not challenge the Petitioners’ securities allegations
and evidentiary showing in the district court; on appeal, Lloyd’s
conceded that the “security” issue was not before the court;®
and the en banc majority “assume[d] without deciding” that
Petitioners in fact did invest in “securities.” App. A, 7a n.2.
Uncontzoverted evidence also shows that Lloyd’s
committed fraud in connection with the offering and sale of its
securities in the United States. Lloyd’s knowingly failed to
disclose to Petitioners that Lloyd’s syndicates had reinsured
billions of dollars of risks — especially risks of liability for
asbestos injury and pollution clean-up — under occurrence-
basis liability policies with no aggregate coverage limits.’
Nevertheless, Lloyd’s induced Petitioners to invest in those
syndicates, and Petitioners suffered huge losses. The district
court acknowledged that “numerous documents” show Lloyd’s
had advance knowledge of — but did not disclose to Petitioners
— the “massive liabilities” that Petitioners faced before Lloyd’s
required Names to sign the Choice Clauses. App. D, 68a n.20.
Il. The Forum-Selection and Choice-of-Law Clauses
In 1986, when Lloyd’s had reason to fear that its syndicates
would soon have to disclose very substantial losses — thereby
(footnote continued)
Found. v. Forman, 421 U.S. 837, 851-52 (1975); SEC v. WJ. Howey Co., 328
US. 293, 299-301 (1946).
> See evidence cited in Names’ Br. 9.
© See Appellees’ Answering Brief 5 n.5.
7 See evidence cited in Names’ Br. 5-6, i1-13.
5
exposing Lloyd’s fraud — Lloyd’s required Names to execute
General Undertakings containing the Choice Clauses. The
Society imposed that requirement as a condition of any new
participation in Lloyd’s syndicates by existing Names, and as a
condition of membership for all new Names. The Choice
Clauses purport to require Names to sue only in English courts
under English law. Petitioners executed those General
Undertakings in the United States.
The effect of the Choice Clauses, if enforced, is certain: in
English courts, Petitioners cannot assert any claim under the
federal securities statutes, RICO or other United States law —
even claims that arose before Lloyd’s required the Choice
Clauses.? Moreover, unlike United States courts — which
impose liability for intentional and negligent non-disclosure of
material facts — English courts will not hold Lloyd’s liable for
knowingly failing to disclose material facts, on the rationale that
Lloyd’s owed Names no legal “duty” to speak. See Ashmore v.
Corporation of Lloyd’s [1992] 2 Lloyd’s Rep. 620."
Ill. Proceedings Below
Petitioners filed two separate suits (Richards and Norton)
in the district court for the Southern District of California.
Petitioners demonstrated that Lloyd’s violated 1933 Act §§ 5,
7(a) by selling its securities without either (a) registering the
offerings and making detailed financial disclosure, or
(b) complying with an applicable exemption from registration.
Petitioners also showed that Lloyd’s violated the anti-fraud
provisions contained in § 12(a)(2) of the 1933 Act, § 10(b) of
the 1934 Act and SEC Rule 10b-5, and state Blue Sky securities
laws.
8 See evidence cited in Names’ Br. 10, 14 and Names’ Reply Br. 7.
9 See SEC Br., App. L, 104a.
10 See also expert legal opinions cited in Names’ Reply Br. 30-31.
11 See evidence cited in Names’ Br. 22 and Names’ Reply Br. 31-32.
6
In addition, Petitioners alleged that the Society’s pattern
of securities violations in connection with its control of the
Unincorporated Association violated RICO. Petitioners also
alleged that Lloyd’s committed common law fraud and breach
of fiduciary duty. Lloyd’s never challenged the RICO and fraud
allegations; Lloyd’s also concedes that Members’ Agents owed
Names a fiduciary duty of disclosure.!*
Without answering the complaints, Lloyd’s moved to
dismiss in reliance on the Choice Clauses. The district court
granted the motion, despite Petitioners’ unrebutted evidence in
opposition to the motion. App. D, 60a-74a; App. E, 79a-83a.
Petitioners, supported by the Securities and Exchange
Commission (“SEC”) as amicus curiae, appealed. App. L, 98a.
A divided three-judge Ninth Circuit panel reversed the
district court’s dismissal of Petitioner’s federal securities and
RICO claims. App. C, 26a (Noonan, J., with Wiggins, J.). The
majority first concluded that the unambiguous federal securities
anti-waiver provisions, 1933 Act § 14 and 1934 Act § 29(a),
render the Choice Clauses void as to the federal securities
claims.
The Choice Clauses operate to effect such waivers.
Accordingly, under the precise terms of these two
statutes, the Choice Clauses are void.
Id. 33a. The panel further held that, quite apart from the anti-
waiver statutes, the Choice Clauses are “unreasonable” in their
impact on Lloyd’s securities law obligations, and hence are
unenforceable under the standards of M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1 (1972).8 App C, 40a-41a.
12 The district court had subject matter jurisdiction over Petitioners’ federal
law claims under 1933 Act § 22(a) and 1934 Act § 27, 15 U.S.C. §§ 77v(a),
78aa; RICO, 18 U.S.C. § 1964(c); and 28 U.S.C. § 1331. The court had
jurisdiction over the state law claims under 28 U.S.C. §§ 1332(a), 1367/a).
‘3 Bremen held that admiralty courts must not enforce private forum-selection
agreements that are ““unreasonable’ under the circumstances,” 407 U.S. at 10,
(footnote continues)
7
The panel majority also reversed the dismissal of
Petitioners’ RICO claims. It remanded those claims to the
district court with instructions to determine whether the Choice
Clauses are “reasonable” in their impact on Lloyd’s obligations
under RICO. App. C, 41a.
The panel unanimously rejected Petitioners’ assertion that
Lloyd’s fraud renders the Choice Clauses unenforceable. App.
C, 32a. In so holding, the panel deferred to a purported “factual
finding” by the district court that Petitioners’ unrebutted
evidence was not “sufficient” to demonstrate fraud in the
procurement of the Choice Clauses. Jd.’
On rehearing, the en banc Ninth Circuit acknowledged
that the anti-waiver statutes “are worded broadly enough to
reach this case”, but nevertheless withdrew the panel opinion
and affirmed the district court ruling, by 8-3 vote. App. A, 6a
(Goodwin, J.).!5 Relying on Bremen and Scherk v. Alberto-Culver
Co., 417 U.S. 506 (1974), the court held that forum-selection
and choice-of-law clauses in private “international” agreements
between United States residents and foreign companies
override the congressional mandate unambiguously set forth in
the anti-waiver statutes. The majority deemed Lloyd’s securities
offerings “international” in character — and thus exempt from
the anti-waiver statutes under the majority’s reading of Scherk
— because the Names travelled to England for an otherwise
(footnote continued)
such as when “enforcement would contravene a strong public policy of the
forum in which suit is brought,” or when the clause is “invalid for such
reasons as fraud or overreaching,” id. at 15.
14 The district court’s ruling that Petitioners’ evidence was “not sufficient”
(App. D, 69a) was—like any ruling on sufficiency of evidence—a conclusion
of law.
15 Judge Goodwin, who dissented from the initial panel decision, see App. C,
43a-53a, authored the en banc majority opinion. Judges Noonan and Wiggins,
the original panel majority, were not selected in the random draw to
participate in the Ninth Circuit's limited en banc rehearing. See Ninth Cir. R.
35-3.
8
trivial meeting as a condition of joining Lloyd’s.’° The majority
speculated that “Lloyd’s likely requires this precisely so that
those who choose to be the Names understand that English law
governs the transaction.” Arp. A, 8a. The court concluded that,
even though the Choice Clauses operate to waive Petitioners’
rights and remedies under the United States securities laws,
enforcement of those clauses was reasonable. This is so, said
the court, because the remedies available to Petitioners in
English courts are “sufficient” substitutes for the remedies and
protections of the 1933 and 1934 Acts. App. A, 9a.2’
The majority enforced the Choice Clauses under Bremen
despite the holding in Stewart Organization, Inc. v. Ricoh Corp.,
487 U.S. 22, 29 (1988), that Bremen does not control when a
statute “itself controls [defendant’s] request to give effect to the
parties’ contractual choice of venue.” See App. A, 7a n.3. Even
though such statutes (the anti-waiver provisions) apply here, the
majority declined to follow the reasoning of Stewart. According
to the court, Stewart is inapplicable because Stewart “involved a
federal court sitting in diversity confronted with a purely
domestic transaction,” id., rather than the type of international
transaction involved here.
Having concluded that Bremen, rather than Stewart,
governed its decision, the Ninth Circuit confronted the
statement in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614 (1985), 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 statutory remedies for
16 See Roby v. Corporation of Lioyd’s, 996 F.2d 1353, 1357 (2d Cir.) (“a brief
meeting in London—a mandatory formality”), cert. denied, 510 U.S. 945
(1993).
17 Likewise, the court held that “the loss of RiCO claims does not suffice to
bar dismissal” on the basis of the Choice Clauses. Enforcing the Choice
Clauses is reasonable, the court believed, because the loss of RICO remedies
would not have precluded dismissal under the doctrine of forum non
conveniens (a theory the district court did nci address). App. A, 13a.
9
antitrust violations, we would have little hesitation in
condemning the agreement as against public policy.
Id. at 637 n.19. The majority said “[w]ithout question this case
would be easier to decide if this footnote in Mitsubishi had not
been inserted.” App. A, 11a. Nevertheless, the court declined to
apply Mitsubishi to Petitioners’ securities claims, saying that
Mitsubishi’s language was “dictum” that did “not... outweigh| }”
the Court’s discussion and purported holding in Scherk, 417
USS. at 516, 517 n.11, 519 n.13. The Ninth Circuit also stated
that Mitsubishi's rationale was limited to the context of antitrust
claims. See App. A, 11a-12a."
Finally, the en banc majority rejected Petitioners’ assertion
that Lloyd’s fraud renders the Choice Clauses unenforceable.
Even though Petitioners alleged — and showed — that “Llioyd’s
knew that the Names were effectively sacrificing valid claims
under U.S. law by signing the choice clauses,” see App. A, 14a,
Lloyd’s fraud did not vitiate the Choice Clauses because, in the
majority’s view, Petitioners’ fraud claims “go[ ] only to the
contract as a whole, with no allegations [of fraud] as to the
inclusion of the choice clauses themselves.” App. A, 14a. In so
holding, the Ninth Circuit acknowledged the Court's statement
in Moseley v. Electronic & Missile Facilities, 374 U.S. 167 (1963),
that “the issue of fraud should first be adjudicated [by the
federal district court] before the rights of the parties under
[contracts] can be determined.” Id. at 171, quoted in App. A,
14a-15a. “{T]his statement”, the Ninth Circuit agreed, “wou'd
seem to support the Names’ position.” App. A, 15a.
Nevertheless, the Ninth Circuit said that, when viewed in
procedural “context,” Moseley did not apply to Petitioners’
i8 The Ninth Circuit recognized that the Court quoted the Mitsubishi
rationale with approval in a non-antitrust case. App. A, 12a n.5 (citing Vimar
Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 540 (1995)). The
Ninth Circuit distinguished Vimar on the ground that that case involved
liabilities under the Carriage of Goods by Sea Act (“COGSA’), “a statute
designed to address international transactions” (App. A, 12a n.5), rather than
the federal securities statutes.
10
fraud assertion because Lloyd’s seeks to enforce the Choice
Clauses in this case, whereas the defendant in Moseley sought to
enforce the arbitration clause in a separate action. App. A,
14a-15a.
The three dissenting en banc judges, agreeing with the two
judges in the Ninth Circuit panel majority, would have ruled the
Choice Clauses unenforceable for two separate reasons. First,
the anti-waiver statutes’ plain language permits no international
exception. App. A, 15a-19a (Thomas, J., dissenting). “The
majority espouses a reasonable foreign policy, but one which
emanates from the wrong branch of government.” Jd. 15a.
Second, quite apart from the anti-waiver statutes, the Choice
Clauses are unenforceable under the standards of Bremen,
Mitsubishi, and Vimar. “Not only do the choice clauses preclude
the plaintiffs from seeking the substantive remedies the Acts
offer, but the protections they provide under English law are
markedly inferior to the Acts’.” Id. 20a. The dissent did not
discuss whether fraud precludes enforcement of the Choice
Clauses.
Recognizing that the five Ninth Circuit judges who voted
to reverse the dismissal raised substantial grounds for
disagreement, Judge Goodwin stayed the appellate mandate
pending the Court’s ruling on this petition. App. B, 24a-25a. See
Fed. R. App. P. 41(b).
11
REASONS FOR GRANTING THE WRIT
I. The Court Has Not Settled the Questions Presented, and
Should Address Those Questions Now
A. The Court’s Precedent Leaves Critical Issues
Unresolved
The Ninth Circuit’s decision presents three integrally
related issues that prior decisions of the Court have anticipated
but not decided.
First, the Court has said — but never held — that the anti-
waiver statutes preclude enforcement of forum clauses that, like
the Choice Clauses here, effectively waive the substantive rights
and remedies guaranteed by the federal securities laws. See
Shearson/American Express v. McMahon, 482 U.S. 220, 229-32
(1987); see also Rodriguez de Quijas v. Shearson/American
Express, 490 U.S. 477, 482-83 (1989) (enforcing clause that
preserved substantive securities rights); Scherk, 417 US. at 519
n.13 (same). Nevertheless, the en banc Ninth Circuit inter-
preted the Court’s 5-4 decision in Scherk — which enforced a
clause that did not effect such a waiver — as permitting enforce-
ment of clauses that do effect waivers. App. A, 7a-8a. Signifi-
cantly, the SEC strongly disagrees with that view. App. L,
105a-108a. The Chairman of the House Committee on the
Judiciary also disagrees with that view:
When foreign promoters come into Illinois and other
States to raise capital, they cannot effectuate waivers
of substantive rights under the securities laws.... Con-
gress has said no and that should be the end of the
story.
United States Investors in Lloyd’s of London Deserve Their Day in
United States Court, 143 CONG. REC. E1607, E1608 (daily ed.
Aug. 1, 1997) (Remarks of Rep. Hyde) (approving the panel
decision of Judges Noonan and Wiggins in this case).
12
Courts have no business applying Bremen in place of a
clear statute. See Stewart, 487 U.S. at 29, and discussion infra, II.
The Court should accept this opportunity to rule directly on the
applicability and effect of the securities law anti-waiver provi-
sions, and to complete the line of analysis commenced in Scherk
and last visited nearly a decade ago in Rodriguez.
Second, the Court has said — but never held — that a
court should not enforce forum-selection clauses when they
operate in tandem with choice-of-law clauses to waive federal
statutory remedies in non-securities cases. See Mitsubishi, 473
U.S. at 637 n.19 (Clayton Antitrust Act); Vimar, 515 U.S. at
540-41 (COGSA); id. at 541-42 (O°CONNOR, J., concurring in
the judgment); id. at 548 n.8 (STEVENS, J., dissenting). The
SEC believes that these statements absolutely preclude enforce-
ment of choice clauses that, in tandem, waive the remedies and
protections of the federal securities statutes. SEC Br., App. L,
117a-118a, 121a-122a. The Court has never said, however,
whether Mitsubishi and Vimar apply to claims under the securi-
ties laws.
There is considerable confusion, moreover, in the lower
courts as to the meaning and applicability of the Court’s state-
ments in Mitsubishi and Vimar. The Ninth Circuit and the Fifth
Circuit say, in contrast with the SEC’s view, that the statements
in Mitsubishi and Vimar only govern choice clauses that waive
remedies under the antitrust statutes and COGSA — not secu-
rities law remedies.!? The Second and Seventh Circuits, unlike
the Ninth and Fifth, recognize that Mitsubishi does apply to
securities claims.”° Those courts, however, have not interpreted
Mitsubishi — as the SEC does (App. L, 117a-118a, 121a-122a)
— to prohibit all waivers of statutory remedies. Rather, those
courts say that Mitsubishi permits a court to enforce choice
clauses that effectuate such waivers if the court concludes that
19 See App. A, 1la-12a & n.5; Haynsworth v. Corporation, 121 F.3d 956, 968-69
(Sth Cir. 1997), cert. denied, _. U.S. ___ (1998).
20 See Roby, 996 F. 2d at 1364 & n.3; Bonny v. Society of Lloyd’s, 3 F.3d 156,
160 (7th Cir. 1993), cert. denied, $10 U.S. 1113 (1994).
13
the remedies available in the chosen foreign forum are “ade-
quate” substitutes for United States statutory remedies.”! (See
discussion infra, III). The Court should resolve the confusion
among the circuits and make clear that the reasoning of Mitsub-
ishi and Vimar precludes enforcement of choice clauses that
waive any substantive federal statutory remedies.
Third, the Court held 35 years ago that a party may avoid a
forum-selection clause by showing that inclusion of the clause
itself was the product of fraud; a plaintiff can make such a
showing by demonstrating that the defendant intended the
clause to effect a fraudulent scheme. See Moseley, 374 U.S. at
170-71, followed, Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n.12 (1967); see also Scherk, 417 US. at 519
n.14. The lower courts have not, however, applied Moseley
consistently. The Sixth Circuit, following Moseley, has held that
a forum-selection clause is unenforceable if the defendant
included the clause for the purpose of getting away with an
over-arching scheme to defraud.” In contrast, the Ninth Circuit
here refused to follow Moseley solely because of a procedural
nuance in Moseley that the Sixth Circuit did not mention. (See
discussion infra, 1V). The Court should accept review in this
case to resolve the circuit split concerning the scope of Moseley.
B. Resolving The Questions Presented Will Bring Cer-
tainty and Predictability to Federal Court Proceedings
Far Beyond the Parties and Transactions Involved
Here
The foregoing issues “have immediate importance far
beyond the particular facts and parties involved” here. Con-
tracts regularly include forum-selection clauses, often in tan-
dem with choice-of-law clauses. Such clauses affect “many
21 See Roby, 996 F.2d at 1356-66; Bonny, 3 F.3d at 160.
22 See CBS Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec.
Corp., 912 F.2d 1563, 1568 (6th Cir. 1990).
23 Chief Justice Fred M. VINSON, Work of the Federal Courts, Address Before
the American Bar Association (September 7, 1949) in 69 S. Ct. v, vi.
14
American consumers, patients, workers, investors, shopkeepers,
shippers, and passengers”.** The lower courts’ repeated
enforcement of Lloyd’s Choice Clauses, and this Court’s
repeated denial of review (see discussion infra, II.A), allows
foreign parties to evade liability under United States securities
law resulting from transactions with United States residents
conducted within United States territory. That is a previously-
unprecedented result,* and it has drawn much academic atten-
tion and criticism.”°
The SEC observes, moreover, that foreign forum-selection
clauses — like Lloyd’s clauses — have serious ramifications for
enforcement of the securities laws. The Ninth Circuit’s holding
that such clauses are valid
would allow foreign promoters of securities undertak-
ing large scale selling efforts in the United States to
avoid private liability...even if the remedies available
under the foreign law were far less effective than those
available under United States law. Such a holding
would seriously impair the ability of defrauded inves-
tors to obtain compensation for their losses, and
would hamper the deterrent function of the federal
securities laws by discouraging private actions.
App. L, 108a. Indeed, under such a holding,
24 Paul D. Carrington & Paul H. Haagen, Contract and Jurisdiction, 1996 Sup.
Cr. REV. 331, 333 (1997).
25 Cf, Bremen, 407 U.S. at 16 (enforcing clause despite apparent conflict with
United States policy because ““[hJere the conduct in question is that of a
foreign party occurring in international waters outside our jurisdiction.””) (quot-
ing lower court dissent) (emphasis added).
26 See Darrell 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 (1997); David A. Fitzgerald, Note & Comment, Allen v. Lioyd’s of
London: A Comment on Forum Selection, 30 CONN. L. REV. 257 (1997);
Jennifer M. Eck, Turning Back the Clock: A Judicial Return to Caveat Emptor
for U.S. Investors in Foreign Markets, 19 N.C. J. Int’L L. & Com. REG. 313
(1994).
15
a clever entrepreneur might even add a conspicuous
provision on its Web page that persons placing orders
[for securities] with it thereby accept a forum selection
provision that makes the courts of the host country the
exclusive forum in which a private action may be
maintained against it.
John C. Coffee, Brave New World? The Impact(s) of the Internet
on Modem Securities Regulation, 52 Bus. LAw. 1195, 1228 &
n.120 (1997) (citations omitted).
The distinction drawn by the Ninth Circuit between wholly
domestic transactions, on the one hand, and transnational
transactions of the kind at issue here, also has far reaching
effect. The large volume and varied forms of modern transna-
tional dealing have blurred distinctions that may have existed in
the early 1970’s — when Bremen and Scherk were decided —
between wholly domestic contracts and predominantly interna-
tional contracts. Indeed, some lower courts and commentators
interpret McMahon as having abandoned any such distinction.
See 482 U.S. at 229 (applying, in a purely domestic case, the
standard adopted in Scherk, a “truly international” case).”” The
en banc Ninth Circuit’s resurrection of that distinction not only
injures United States investors and consumers, but also gives
sophisticated foreign parties a marked advantage over their
United States competitors.
Enforcing the choice clauses gravely disadvantages
American businesses, because foreign businesses, like
Lioyd’s, can recruit investors without expending the
27 See Kotam Elecs., Inc. v. JBL Consumer Prods., Inc., 93 F.3d 724, 727 & n.5
(11th Cir. 1996) (en banc) (“In McMahon, the Supreme Court...discarded the
distinction between domestic and international transactions...”), cert. denied,
117 S. Ct. 946 (1997); G. Richard Shell, Res Judicata and Collateral Estoppel
Effects of Commercial Arbitration, 35 U.C.L.A. L. REv. 623, 624 n.7 (1988)
(“The McMahon Court made no distinction between the international and
domestic arbitral forums...”), quoted with approval, Nghiem v. NEC Elec., Inc.,
25 F3d 1437, 1442 (9th Cir.) (panel decision), cert. denied, 513 U.S. 1044
(1994).
16
time and money involved in fulfilling the requirements
of the Acts — a burden that American businesses
cannot legally evade.
En banc dissent App. A, 20a-21a.
Il. The Ninth Circuit’s Failure to Apply the Anti-Waiver Stat-
utes Conflicts With This Court’s Precedent
A. This Court’s Decisions Preclude A Judge-Made Excep-
tion to the Anti-Waiver Statutes
The Ninth Circuit’s creation of a judge-made exception to
the anti-waiver statutes for international forum-selection
clauses clashes directly with the holdings of this Court, as
conveyed in opinions authored or joined by every current
Justice.
Stewart shows that Bremen does not control when a statute
itself governs “the immediate issue before the court.” Stewart,
487 U.S. at 28. See also id. at 33 (KENNEDY, J., joined by
O’CONNOR, J., concurring “‘in full’’); id. (SCALIA, J., dissent-
ing). The Court has consistently followed Stewart’s rationale.
When faced with an anti-waiver statute in Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585 (1991), the Court analyzed the effect
of that statute upon the enforceability of a forum-selection
clause separately from its analysis under -Bremen. Compare
Carnival, 499 U.S, at 595-97 with id. at 590-95; see also id. at
598-605 (STEVENS, J., dissenting’ Similarly, in Vimar the
Court said “[t}he relevant question’ _. whether a forum-selec-
tion clause would subject the plaintiff to substantive foreign law
that, by reducing the defendant’s obligations to the plaintiff,
thereby violates a relevant anti-waiver statute. 515 U.S. at 539;
accord id. at 548 n.8 (STEVENS, J., dissenting). The Ninth
Circuit erred in disregarding the statutory analysis required by
Stewart, Carnival and Vimar. See panel majority, App. C,
38a-39a.
The Ninth Circuit’s holding that policy considerations
under Bremen trump the clear language of the anti-waiver
17
statutes also conflicts with this Court’s decisions refusing to
create judicial exceptions to clear legislation in other statutory
contexts. Speaking through Justice SCALIA, the Court recently
explained, “{clourts may not create their own limitations on
legislation, no matter how alluring the policy arguments for
doing so...” Brogan v. United States, 118 S. Ct. 805, 811-812
(1998). Rather, “we are bound to take Congress at its word”
when a statute “implements Congress’ policy via a strict,
unqualified statutory stricture on waivers.” Oubre v. Entergy
Operations, Inc., 118 S. Ct. 838, 841 (1998) (maj. op. of KEN-
NEDY, J.). When Congress has enacted clear legislation,
“we...give effect to this plain command, even if doing that will
reverse the longstanding practice under the statute...” Lexecon
Inc. v. Milberg Weiss Bershad Hynes & Lerach, 118 S. Ct. 956, 962
(1998) (maj. op. of SOUTER, J.) (citations omitted); see also
Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992)
(maj. op. of THOMAS, J.) (quoted by en banc dissent, App. A,
17a); United States v. Rutherford, 442 U.S. 544, 555 (1979)
(unanimous op.) (quoted in en banc dissent, App. A, 16a-17a).
The en banc dissent recognized the constraint that these hold-
ings impose on the construction of statutes by lower courts.
App. A, 16a-18a. The en banc majority disregarded that con-
straint entirely.
The Ninth Circuit’s judge-made exception to the anti-
waiver statutes is, moreover, ripe for this Court’s review. The
Court has previously denied review of several lower court di |-
sions that enforced the Choice Clauses without addressing
whether the clear text of the securities anti-waiver provisions
voids those clauses. Unlike the en banc majority’s decision here,
however, those decisions either failed to mention the anti-
waiver statutes, or treated those statutes as mere expressions of
public policy rather than as legislative commands.™ Those deci-
sions therefore did not address whether Bremen and Scherk
28 See Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.)
(enforcing Choice Clauses without mentioning anti-waiver statutes), cert.
(footnote continues)
18
trump the anti-waiver statutes for transactions involving an
international party — or whether, instead, the reasoning of
Stewart controls. Earlier this Term, the Court denied certiorari
in another such case. See Haynsworth, 121 F.3d at 965-66 (con-
cluding that the Choice Clauses do not “contravene[ ] public
policy as embodied in the anti-waiver provisions”) (emphasis
added). The Haynsworth decision, however, did not even men-
tion Stewart. The Court should review now the Ninth Circuit’s
judge-made exception to the anti-waiver statutes for interna-
tional transactions.
B. The Ninth Circuit’s Refusal to Enforce the Anti-Waiver
Statutes Conflicts with This Court’s Decisions in
McMahon and Rodriguez, and Misapplies Scherk
In refusing to hold Lloyd’s Choice Clauses void under the
anti-waiver statutes, the Ninth Circuit said that Bremen “con-
templated” that, in international transactions, “a forum selec-
tion clause may conflict with relevant statutes”. App. A, 7a.
Further, according to the Ninth Circuit, Scherk left “little
doubt” that Bremen, rather than the anti-waiver statutes, gov-
erns enforceability of forum-selection clauses in international
transactions. Jd. 7a. The Ninth Circuit’s holding conflicts
squarely with McMahon and Rodriguez, and misapplies Scherk.
The Ninth Circuit’s reliance on Scherk conflicts with
McMahon and Rodriguez in two critical ways. First, the Ninth
Circuit’s interpretation of Scherk is completely at odds with
McMahon’s explanation of Scherk’s holding, and with the
(footnote continued)
denied, 506 U.S. 1021 (1992); Roby, 996 F.2d at 1364 (“By including antiwaiver
provisions in the securities laws, Congress made clear its intention that the
public policies incorporated into those laws should not be thwarted.”) (empha-
sis added), cert. denied, 510 U.S. 945; see also Bonny, 3 F.3d at 160-61
(substantially the same), cert. denied, 510 U.S. 1113; Allen v. Lioyd’s of
London, 94 F.3d 923, 929 (4th Cir. 1996) (“We do not believe that enforcing
[the Choice Clauses] in this case will subvert the United States securities laws’
policy...”) (emphasis added), mandamus denied sub nom. In re Allen, 138 L.
Ed. 2d 1004 (1997).
19
Court’s subsequent interpretation of the anti-waiver statutes in
Rodriguez. In McMahon, Justice O'CONNOR explained for the
Court that Scherk upheld an arbitration clause in an interna-
tional transaction because — and only because — the foreign
arbitral forum provided an adequate means of enforcing the
parties’ substantive rights under the 1934 Act:
The decision in Scherk thus turned on the Court's
judgment that under the circumstances of that case,
arbitration was an adequate substitute for adjudica-
tion as a means of enforcing the parties’ statutory rights.
McMahon, 482 U.S. at 229 (emphasis added).”” Based on that
explanation of Scherk, the Court construed the 1934 Act anti-
waiver provision to permit arbitration clauses in domestic trans-
actions because (and only because) such clauses preserve sub-
stantive statutory rights. McMahon, 482 U.S. at 229-32. Rodri-
guez further explained that the anti-waiver provisions preclude
contractual waivers of “substantive” securities provisions, “such
as the provision [in 1933 Act § 12(a)(2)] placing on the seller
the burden of proving lack of scienter when a buyer alleges
fraud.” Rodriguez, 490 U.S. at 481.
McMahon and Rodriguez preclude enforcement of Lloyd’s
Choice Clauses precisely because those clauses do not preserve
Petitioners’ substantive rights under the securities laws, includ-
ing Petitioners’ rights under § 12(a)(2). The SEC as amicus
curiae in the court below agreed. App. L, 112a-114a. The Ninth
Circuit did not even mention McMahon, or the SEC’s assertion
that McMahon’s construction of the anti-waiver statutes con-
trols here. In direct conflict with McMahon and the SEC’s
29 See also Alberto-Culver Co. v. Scherk, 484 F.2d 611, 618-19 (7th Cir. 1973)
(“The text of the 1933 Act, like the text of the 1934 Act, renders void any
waiver by a plaintiff of a defendant’s obligation to comply with the statute.”)
(Stevens, J., dissenting), rev'd, 417 U.S. 506 (1974), and cited in McMahon, 482
US. at 268 n.2 (STEVENS, J., dissenting in part) and Mitsubishi, 473 U.S. at
646 (STEVENS, J., dissenting).
20
clearly expressed views, the Ninth Circuit’s decision to enforce
the Choice Clauses wipes out Petitioners’ claims.”
Second, the Ninth Circuit’s reliance on the Names’ travel
to England — which supposedly demonstrates “under-
stand[ing]” by the Names that English law would control (App.
A, 8a) — conflicts with McMahon’s unequivocal statement that
the anti-waiver provisions preclude all waivers, regardless of
how voluntary the waivers might be:
[t]he voluntariness of the agreement is irrelevant to
this inquiry: if a stipulation waives compliance with a
statutory duty, it is void under [1934 Act § 29(a)],
whether voluntary or not.
482 U.S. at 230; see also Rodriguez, 490 U.S. at 482. Under
McMahon and Rodriguez, the Names’ purported voluntary
“understand[ing}” that the Choice Clauses required English law
is irrelevant. See SEC Br., App. L, 113a.*!
3° In contrast to the burden of proof that 12(a)(2) places upon defendants, an
English court would impose a burden of proof on Petitioners to show Lloyd's
bad faith. English courts also would not grant any remedy like the remedy
enacted in § 12(a)(1) for Lloyd's failure to register its securities offerings and
make disclosure under 1933 Act §§ 5, 7(a). Neither would English courts
require Lloyd's to show that it exercised due care in the control of Members’
Agents and Managing Agents who violated the securities laws, pursuant to
1933 Act § 15 and 1934 Act § 20(a).
31 The majority also believed that applying the anti-waiver statutes to forum-
selection clauses in contracts between United States residents and a foreign
party would “expand[ } the reach of federal securities law to any and all such
transactions, no matter how remote from the United States.” App. A, 7a-8a.
That concern wrongly conflicts with the text, legislative history, and settled
judicial interpretation of the Acts. See en banc dissent, App. A, 21a-22a; SEC
Br., App. L, 115a n.8 (“Lioyd’s defendants can hardly claim surprise that they
would be subject to United States law when they came to the United States
seeking investmer: by Americans”); SEC v. Chinese Consol. Benev. Ass'n, 120
F.2d 738, 741 (2d Cir.) (A. Hand, J.), cert. denied, 314 U.S. 618 (1941); Itoba
Lid. v. LEP Group PLC, 54 F.3d 118, 121-24 (2d Cir. 1995), cert. denied, 116 S.
Ct. 702, 703 (1996).
21
Not only did the Ninth Circuit wrongly ignore McMahon,
but it impermissibly extended the rationale of Scherk — which
only applies to “truly international” agreements, 417 U.S. at
515 — to predominantly domestic transactions with foreign
parties. The “truly international” transaction in Scherk involved
an American corporation that expanded its overseas operations
by (1) seeking out the seller of a business in Germany,
(2) engaging foreign counsel and consultants to represent it in
purchasing that business, and (3) negotiating in several differ-
ent countries before signing a deal in Austria and closing in
Switzerland. See 417 U.S. at 508-09, 515. This case is different.
Indeed,
the Scherk majority itself recognized that a contract
with “insignificant or attenuated” contacts with for-
eign countries might well prompt a refusal to enforce
a forum selection clause, let alone « clause choosing
foreign law. Scherk, 417 U.S. at 517 n.11. The Court
observed: “Judicial response to such situations can
and should await future litigation in concrete cases.”
Id.
En banc dissent, App. A, 19a. Because this case involves only a
trivial overseas meeting, “[t]he instant case offers just such a
concrete opportunity...” App. A, 19a. The Lloyd’s securities
offerings were no more international in character than any
other United States securities transaction involving a foreign
seller with global operations.
32 See Roby, 996 F.2d at 1357 (“a brief meeting in London—a mandatory
formality”).
22
Ill. The Lower Courts Misunderstand This Court’s Public Pol-
icy Standards for Enforcing Forum-Selection Clauses
under Bremen, As Explained By Mitsubishi and Vimar
The Ninth Circuit held that public policy permits enforce-
ment of choice clauses that waive federal statutory remedies, so
long as the remedies afforded by the foreign court are deemed
“sufficient.” App. A, 9a. This approach conflicts with Bremen,
as explained by Mitsubishi, 473 U.S. at 637 n.19 (stating that
Court would “condemn[ ]}” choice clauses that, in tandem,
waive statutory remedies), quoted with approval, Vimar, 515 U.S.
at 540. The Ninth Circuit’s refusal to follow Mitsubishi —
together with decisions from other circuits — demonstrates,
moreover, that the lower courts completely misunderstand how
to apply Bremen’s policy analysis.
The en banc majority declined to apply Mitsubishi's ratio-
nale — which the majority believed was “dictum...regarding
antitrust law” — to the securities claims in this case, because
the majority wrongly believed that Scherk compels enforcement
of the Choice Clauses notwithstanding Mitsubishi. App. A,
lla-12a. According to the Ninth Circuit, Scherk’s enforcement
of a clause requiring foreign arbitration of a 1934 Act claim,
based on Bremen, means that the anti-waiver statutes do not
apply to forum-selection clauses, even if the foreign forum
would not enforce the United States securities laws — for
example, due to a foreign choice-of-law clause. This is so, said
the Ninth Circuit, because Scherk “never suggested” that a
foreign choice-of-law clause affects the validity of a forum-
selection clause. App. A, 12a.*°
By relying on Scherk’s failure to address foreign choice-of-
law clauses, the Ninth Circuit extended Scherk’s holding far
beyond the issue decided in that case. Scherk’s failure to
33 The Fifth Circuit reached the same conclusion in Haynsworth, 121 F3d at
968.
23
address foreign choice-of-law clauses stems not from any opin-
ion that such clauses are irrelevant under tine anti-waiver stat-
utes, but rather from the fact that the contract in Scherk
selected United States law, specifically the law of “Illinois,
US.A.” 417 US. at 508 n.1, 519 n.13. See en banc dissent, App.
A, 18a. Thus, nothing in Scherk precludes applying Mitsubishi's
rationale to statutory federal securities remedies.
The Second and Seventh Circuits, moreover, disagree with
the Ninth Circuit’s conclusion that Scherk limits Mitsubishi. The
Second and Seventh Circuits have both held that the Mitsubishi
rationale does apply to securities law remedies — notwithstand-
ing Scherk. “Scherk, decided eleven years before Mitsubishi, is
not to the contrary.” Roby, 996 F. 2d at 1364 n.3; see also Bonny,
3 F.3d at 160 (applying Mitsubishi).
Even though the Second and Seventh Circuits recognize
that Mitsubishi applies to securities remedies, those courts nev-
ertheless improperly interpret Mitsubishi. Mitsubishi and Vimar
straightforwardly preclude enforcing choice clauses that waive
statutory remedies. Both the Second and Seventh Circuits
believe, however, that Mitsubishi permits enforcement of a
forum-selection clause that waives statutory remedies if the
court concludes that available foreign remedies are “adequate”
to implement the policies that underlie the United States stat-
ute. See Roby, 996 F.2d at 1364-66; Bonny, 3 F.2d at 160-61. That
is the same comparative iaw balancing that the Ninth Circuit
incorrectly employed in attempting to apply Bremen and Scherk
in this case. By undertaking that difficult endeavor,” the lower
courts appropriated more judicial policy-making authority than
Mitsubishi and Vimar permit, “in essence supplant{ing} their
policy views of what laws are sufficient to protect United States
investors for the determination made by Congress.” SEC Br.,
App. L, 122a. The courts’ ill-equipped attempts at such a quasi-
4 See pane! majority, App. C, 40a (task undertaken by Roby and Bonny is
“not easy”); id. 50a-Sla (Goodwin, J., dissenting) (confronting “a difficult
question”); Roby, 996 F.2d at 1363 (confronting “a serious question”), Bonny,
3 F.3d at 160 (expressing “serious concerns”).
24
legislative comparative balancing has, moreover, led the courts
into faulty reasoning and erroneous results.*
IV. The Ninth Circuit’s Fraud Holding Conflicts With This
Court’s Moseley Decision, And With The Application of
Moseley By the Sixth Circuit
The Ninth Circuit incorrectly enforced the Choice Clauses
despite the undisputed evidence of Lloyd’s fraud. In doing so,
the court erroneously refused to follow Moseley — in direct
conflict with the Sixth Circuit’s adherence to Moseley in CBS
Employees, 912 F.2d at 1568.
To invalidate a forum-selection clause based on fraud, a
plaintiff must show fraud in the inducement of the clause itself,
not merely fraud in connection with the contract generally.
App. A, 14a (citing Prima Paint, 388 U.S. at 403-04; Scherk, 417
U.S. at 519 n.14).*° Moseley held that fraud “goes to the arbitra-
tion clause itself” when, as in this case, “the insertion in the
subcontracts of an arbitration clause” was “[o]ne of the means
used to effect [the fraudulent] scheme”. 374 U.S. at 171, cited in
Prima Paint, 388 U.S. at 404 n.12 (construing the Federal
Arbitration Act in a manner “consistent...with the decision in
Moseley...”’).
35 For example, the Ninth Circuit held that English law provides “sufficient”
protection to Names. App. A, 9a. But, as the SEC explains, that determina-
tion was wrong. See App. L, 119a-123a; en banc dissent, App. A, 19a-23a;
panel majority, App. C, 40a-41a. Roby’s policy balancing relied heavily on the
SEC’s “apparent judgment” that Lloyd’s qualified its offerings for a regula-
tory exemption from registration and disclosure under 1933 Act 5. See 996
F.2d at 1365-66. But the SEC explains that it has never made any judgment
that Lloyd’s is exempt from registration and disclosure. App. L, 123a-125a.
The other circuits that have addressed the Choice Clauses since Roby have all
relied on Roby’s policy analysis, without acknowledging that critical error in
Roby’s rationale. See Bonny, 3 F.3d at 161-62 (citing Roby); Allen, 94 F.3d at
929 (citing Roby and Bonny), Haynsworth, 121 F.3d at 969 n.28 (citing Roby,
Bonny and Allen), App. A, 9a (citing Roby, Bonny, Allen and Haynsworth).
36 Moseley, Prima Paint and Scherk involved arbitration clauses, which are
merely specialized forum-selection clauses. E.g., Rodriguez, 490 U.S. at 483;
Scherk, 417 U.S. at 519.
25
Petitioners’ unrebutted evidence demonstrates the type of
fraud that voids forum-selection clauses under Moseley. Lloyd’s
knew its conduct violated United States law before it required
Names to sign the Choice Clauses. App. A, 14a. Lloyd’s knew
that it had concealed the fact that it had saddled United States
investors with billions of dollars of losses from asbestos and
pollution liability risks*” — in violation of the federal and state
securities laws and state common law — and that losses from
those risks would soon become known.* Lioyd’s therefore had
reason to fear that American Names would seek relief against
Lloyd’s under United States law in United States courts when
the Names began to realize these asbestos and pollution liability
losses. Lloyd’s induced Names to accept the Choice Clauses
knowing that — because English courts will not enforce the
Names’ claims against Lloyd’s under American law — the
clauses would strip Names of all their United States law reme-
dies. (See discussion supra, 5). That circumstantial evidence
establishes that Lloyd’s adopted the Choice Clauses to further a
fraudulent scheme.”
The Ninth Circuit did not hold that Petitioners failed to
show fraud of the type alleged in Moseley. Instead, the court
incorrectly held that such a showing is insufficient as a matter of
law. The Ninth Circuit first held that Lloyd’s fraud is legally
insufficient to defeat the Choice Clauses because that fraud
“gofes] only to the contract as a whole,” rather than to the
Choice Clauses themselves. App. A, 14a. This is so, said the
Ninth Circuit, because “[t]he Names never allege...that Lloyd's
misled them as to the legal effect of the choice clauses [or that]
Lloyd’s fraudulently inserted the clauses without their knowl-
edge.” App. A, 14a. But Moseley held that evidence showing
that a forum-selection clause was intended to effectuate a.
37 See evidence cited in Names’ Br. 5-6, 11-13.
38 See evidence cited in Names’ Br. 38.
39 See evidence cited in Names’ Reply Br. 41.
40 “(C}ircumstantial evidence can be more than sufficient” to show fraud.
Herman & MacLean v. Huddleston, 459 U.S. 375, 390 n.30 (1983).
26
fraudulent scheme — like Petitioners’ unrebutted evidence here
— does go to the validity of the clause itself, as a matter of law.
374 US. at 170-71. And, Moseley did not require allegations or
evidence of deception as to the existence or legal effect of the
clause.
Second, the Ninth Circuit attempted to distinguish Moseley
on the basis of differences between the procedural posture in
Moseley and the procedural posture here. App. A, 14a-15a.
According to the Ninth Circuit, Moseley does not apply when a
plaintiff seeks to invalidate a forum-selection clause in the same
action where the defendant seeks to enforce the clause. App. A,
15a. Moseley is distinguishable, said the Ninth Circuit, because
“{hjere Lloyd’s has clearly and vigorously called for the enforce-
ment of the choice clauses,” id., whereas the defendant in
Moseley sought to enforce the clause in a separate action from
the plaintiff’s action challenging the clause. 374 U.S. at 170. But
Moseley placed no reliance on that procedural posture. As the
Court later explained in a slightly different procedural context,
“it is inconceivable that Congress intended the rule to differ
depending upon which party to the arbitration agreement first
invokes the assistance of a federal court.” Prima Paint, 388 U.S.
at 404.
The Ninth Circuit’s holding also conflicts with the Sixth
Circuit’s holding in CBS Employees. Following Moseley, the
Sixth Circuit held:
Where, as here, the plaintiff affirmatively pleads that
the contract and the arbitration agreement...were
procured through fraud, the court should determine
whether the arbitration clause was used to further the
fraudulent scheme.
912 F.2d at 1568 (citing Moseley and Prima Paint). Unlike the
Ninth Circuit, CBS Employees did not require allegations or
evidence of deception as to the existence or legal effect of the
clause. And the Sixth Circuit applied Moseley’s central holding
even though the CBS Employees plaintiff raised its challenge to
27
the clause in the same proceeding where the defendant tried to
enforce that clause. See 912 F.2d at 1565.
CONCLUSION
The Petition for Writ of Certiorari should be granted.
Respectfully submitted,
STEPHEN A. KROFT
Counsel of Record for Petitioners
EUGENE I. GOLDMAN
ROBERT E. KOHN
la
APPENDIX A
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALAN RICHARDS, et al.,
)
Plaintiffs-Appellants, ) No. 95-55747
)
v. ) D.C. No.
) CV-94-01211-
) IEG
LLOYD’S OF LONDON, an )
unincorporated association, et al., )
Defendants-Appellees. )
)
)
JOHN R. NORTON, III; Doris S. )
NORTON; DIANE B. ALLISON; )
CHARLES G. BENTZIN; F.M. BINKLEY; )
DELMAR A. BRADY; SAMME JO BRADY; )
GEORGE MANING CLOSE; RUSSELL M. )
COLLINS; PETER DWARES; ROBERT )
FLESVIG; DONALD P. GALLOP; )
CHARLES A. GERLACH, JR.; ROBERT W. )
GERWIG; RICHARD C. HENRY; )
MICHAEL C. HIRSH; R. WILLIAM ) No. 95-56467
JOHNSTON; JAMES H. KAYIAN; )
JOANNE S. KAYIAN-OLOONEY; SUZANNE ) D.C. No.
KAYIAN; LOWELL CONRAD LUNDELL; ) CV-95-00952-
JUDITH M. OTT; H.E. RAINBOLT; ) IEG
DAVID L. ROSENBLATT; RAY MORSE )
SANDERSON; CLAIRE TILLMAN; ) OPINION
)
WARREN G. VANDER VOORT; PETER
2a
BECK; HAROLD FRANZ ILG; JOHN C.
GRIFFIN; TED KOSLOFF; FRANCIS J.
MILON; GLEN R. MOGAN; MELANIE M.
NORTON; JOSEPH F. WELLER,
Plaintiffs-Appellants,
We
LLOYD’S OF LONDOW, an unincorporated
association; CORPORATION OF LLOYD’S,
aka Society of Lloyd’s, aka The
Society and Council of Lloyd’s,
Defendants-Appellees.
Appeals from the United States District Court
for the Southern District of California
Irma E. Gonzalez, District Judge, Presiding
Argued and Submitted
October 23, 1997—San Francisco, California
Filed February 3, 1998
Before: Procter Hug, Jr., Chief Judge, Alfred T. Goodwin,
Harry Pregerson, Alex Kozinski, Stephen S. Trott, Ferdinand F
Fernandez, Pamela Ann Rymer, Andrew J. Kleinfeld, Michael
Daly Hawkins, A. Wallace Tashima, and Sidney R. Thomas,
Circuit Judges.
Opinion by Judge Goodwin; Dissent by Judge Thomas
GOODWIN, Circuit Judge:
The primary question this case presents is whether the
antiwaiver provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934 void choice of law and choice
of forum clauses in an international transaction. The district
court found that they do not. The appeal has been argued twice.
Upon reconsideration en banc, the opinion published at 107
3a
F.3d 1422 (9th Cir. 1997) is withdrawn and we affirm the district
court.
Background
Appellants, all citizens or residents of the United States,
are more than 600 “Names” who entered into underwriting
agreements. The Names sued four defendants: the Corporation
of Lloyd’s, the Society of Lloyd’s, the Council of Lloyd’s,
(collectively, ‘“Lloyd’s”) and Lloyd’s of London, (the
“unincorporated association”).
Lioyd’s is a market in which more than three hundred
Underwriting Agencies compete for underwriting business.
Pursuant to the Lloyd’s Act of 1871-1982, Lloyd’s oversees and
regulates the competition for underwriting business in the
Lioyd’s market. The market does not accept premiums or
insure risks. Rather, Underwriting Agencies, or 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 underwritten.
The Names provide the underwriting capital. The Names
become Members 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. To become a
Name, oné must travel to England to acknowledge the
attendant risks of participating in a syndicate and sign a
General Undertaking. The General Undertaking is a two
page document containing choice of forum and choice of law
clauses (collectively the “choice clauses”), which form the basis
for this dispute. The choice clauses read:
2.1 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
da
governed by and construed in accordance with the
laws of England.
2.2 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....
By becoming a Member, the Names obtain 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 are represented by Members’
Agents who, pursuant to agreement, stand in a fiduciary
relationship with their Names. Upon becoming a Name, an
individual selects the syndicates in which he wishes to
participate. In making this decision, the individual must rely to
a great extent on the advice of his Members’ Agent. The Names
generally join more than one underwriting agency in order to
spread their risks across different types of insurance. When a
Name undertakes an underwriting obligation, that Name is
responsible only for his share of an agency’s losses; however, his
liability is unlimited for that share.
In this case, the risk of heavy losses has materialized and
the Names now seek shelter under United States securities laws
and the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1961 et seq. The Names claim that
Lloyd’s actively sought the investment of United States
residents to fill an urgent need to build up capital. According to
the Names, Lloyd’s concealed information regarding the
possible consequences of the risks undertaken and deliberately
and disproportionately exposed the Names to massive liabilities
for which sufficient underwriting capital or reinsurance was
unavailable.
This appeal does not address the merits of the underlying
claims. It addresses only the Names’ contention that their
Sa
disputes with Lloyd’s should be litigated in the United States
despite contract clauses binding the parties to proceed in
England under English law. It also addresses whether default
should have been entered against the unincorporated
association.
Standard of Review
We review the district court’s decision to enforce the
choice clauses for abuse of discretion. Argueta v. Banco
Mexicano, S.A., 87 F.3d 320, 323 (9th Cir. 1996). As we are
reviewing a Rule 12(b)(3) motion decision, we need not accept
the pleadings as true. Jd. at 324.
Whether the securities laws void the choice clauses is a
question of law that we review de novo. Pinal Creek Group v.
Newmont Mining Corp., 118 F.3d 1298, 1300 (9th Cir. 1997).
Discussion
The Names make three arguments for repudiating the
choice clauses. They contend (1) that the antiwaiver provisions
of the federal securities laws void such clauses, (2) that the
choice clauses are invalid because they offend the strong public
policy of preserving an investor’s remedies under federal and
state securities law and RICO and (3) that the choice clauses
were obtained by fraud. We will address each of these in turn.
We analyze the validity of the choice clause under The
Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), where the
Supreme Court stated that courts should enforce choice of law
6a
and choice of forum clauses in cases of “freely negotiated
private international agreement{s].” Bremen, 407 U.S. at 12-13.
A
The Names dispute the application of Bremen to this case.
They contend that Bremen does not apply to cases where
Congress has spoken directly to the immediate issue — as they
claim the antiwaiver provisions do here.
The Securities Act of 1933 (the “’33 Act”) provides that:
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 1934 Securities Exchange Act (the “’34
Act”) contains a substantially similar provision. 15 U.S.C. §
78cc(a). The Names seize on these provisions and claim that
they void the choice clauses in their agreement with Lloyd’s.
Certainly the antiwaiver provisions are worded broadly
enough to reach this case. They cover “any condition,
stipulation, or provision binding amy person acquiring any
security to waive compliance with any provision of this
subchapter....” Indeed, this language is broad enough to reach
any offer or sale of anything that could be alleged to be a
security, no matter where the transaction occurs.
! While the contract in Bremen did not contain a choice of law clause, the
Supreme Court explicitly recognized that the forum selection clause also
acted as a choice of law clause. Jd. at 13 n.15 (“[Wyhile the contract here did
not specifically provide that the substantive law of England should be applied,
it is the general rule in English courts that the parties are assumed, absent a
contrary indication, to have designated the forum with the view that it should
apply its own law.... It is therefore reasonable to conclude that the forum
clause was also an effort to obtain certainty as to the applicable substantive
law.””).
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Nevertheless, this attempt to distinguish Bremen fails. In
Bremen itself, the Supreme Court contemplated that a forum
selection clause may conflict with relevant statutes. Bremen, 407
US. at 15 (“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 by judicial decision.”) (emphasis added).
Moreover, in Scherk v. Alberto-Culver Co., 417 U.S. 506
(1974), the Supreme Court explicitly relied on Bremen in a case
involving a securities transaction.’ Echoing the language of
Bremen, the Court found that “[a] contractual provision
specifying in advance the forum in which disputes shall be
litigated and the law to be applied is ... an almost indispensable
precondition to achievement of the orderliness and
predictability essential to any international business
transaction.” Id. at 516. See Bremen, 407 U.S. at 13-14
(“{A]greeing in advance on a forum acceptable to both parties
is an indispensable element in international trade, commerce,
and contracting.”). This passage should leave little doubt as to
the applicability of Bremen to the case at hand.?
Indeed, were we to find that Bremen did not apply, the
reach of United States securities laws would be unbounded.
The Names simply prove too much when they assert that
“Bremen’s judicially-created policy analysis under federal
common law is not controlling when Congress has expressed its
will in a statute.” This assertion, if true, expands the reach of
2 In Scherk the Supreme Court assumed without so ruling that the transaction
involved securities. Scherk, 417 U.S. at 514 n.8. Because it is not altogether
clear whether the investments here were securities, we too assume without
deciding that the Names invested in securities.
3 The Names also cite Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22
(1988) in support of their position. Stewart does not aid the Names. It is true
that Stewart held that before engaging in a Bremen analysis, “the first question
{is} whether [28 U.S.C.] § 1404(a) itself controls respondent's request to give
effect to the parties’ contractual choice of venue.” Stewart, 487 U.S. at 29.
That case, however, involved a federal court sitting in diversity confronted
with a purely domestic transaction. Thus it does not address this situation.
8a
federal securities law to any and all such transactions, no matter
how remote from the United States. We agree with the Fifth
Circuit that “we must tread cautiously before expanding the
operation of U.S. securities law in the international arena.”
Haynsworth v. The Corporation, 121 F.3d 956, 966 (Sth Cir.
1997).
B
Having determined that Bremen governs international
contracts specifying forum and applicable law, we turn to the
question whether the contract between Lloyd’s and the Names
is international. Not surprisingly, the Names contend that these
were purely domestic securities sales. They claim that Lloyd’s
solicited the Names in the United States and that the trip the
Names made to England was a mere ritual without legal
significance.
We disagree. The Names signed a contract with English
entities to participate in an English insurance market and flew
to England to consummate the transaction. That the Names
received solicitations in the United States does not somehow
erase these facts. Moreover, Lloyd’s insistence that individuals
travel to England to become a Name does not strike us as mere
ritual. Lloyd’s likely requires this precisely so that those who
choose to be the Names understand that English law governs
the transaction. Entering into the Lloyd’s market in the manner
described is plainly an international transaction.
II
We now apply Bremen to this case. Bremen emphasized
that “in 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.” Bremen, 407 U.S. at 15. The Court reasoned that
“[t]he elimination of all [ ] uncertainties [regarding the forum]
by agreeing in advance ... is an indispensable element in
9a
international trade, commerce, and contracting.” Jd. at 13-14.
Thus, “absent some compelling and countervailing reason {a
forum selection clause} should be honored by the parties and
enforced by the courts.” Jd. at 12. The party seeking to avoid
the forum selection clause bears “a heavy burden of proof.” Jd.
at 17.
The Supreme Court has identified three grounds for
repudiating a forum selection clause: first, if ihe inclusion of the
clause in the agreement was the product of fraud or
overreaching; second, if the party wishing to repudiate the
clause would effectively be deprived of his day in court were the
clause enforced; and third, “if enforcement would contravene a
strong public policy of the forum in which suit is brought.” /d. at
12-13, 15, 18. The Names contend that the first and third
grounds apply in this case.
A
The Names’ strongest argument for escaping their
agreement to litigate their claims in England is that the choice
clauses contravene a strong public policy embodied in federal
and state securities law and RICO. See Bonny v. Society of
Lloyd’s, 3 F.3d 156, 160-61 (7th Cir. 1993) (expressing “serious
concerns” that the choice clauses offend public policy but
ultimately ruling in Lloyd’s favor), cert. denied, 510 U.S. 1113
(1994); Roby v. Corporation of Lloyd’s, 996 F.2d 1353, 1364-66
(2nd Cir.) (substantially the same), cert. denied, 510 U.S. 945
(1993).
We follow our six sister circuits that have ruled to enforce
the choice clauses. See Haynsworth, 121 F3d 956; Allen v.
Lloyd’s of London, 94 F.3d 923 (4th Cir. 1996); Shell v. R. W
Sturge, Ltd., 55 F.3d 1227 (6th Cir. 1995); Bonny, 3 F3d 156;
Roby, 996 F.2d 1353; and Riley v. Kingsley Underwriting Agencies,
Ltd., 969 F.2d 953 (10th Cir.), cert. denied, 506 U.S. 1021 (1992).
We do so because we apply Scherk and because English law
provides the Names with sufficient protection.
10a
In Scherk, the Supreme Court was confronted with a
contract that specified that all disputes would be resolved in
arbitration before the International Chamber of Commerce in
Paris, France. Scherk, 417 U.S. at 508. The arbitrator was to
apply the law of the state of Illinois. Jd. The Court enforced the
forum selection clause despite then hostile precedent. * Jd. at
520-21. See Wilko v. Swan, 346 U.S. 427 (1953), overruled by
Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S.
477, 485 (1989).
The Court’s treatment of Wilko leaves little doubt that the
choice clauses in this case are enforceable. In Wilko, the
Supreme Court ruled that “the right to select the judicial forum
is the kind of ‘provision’ that cannot be waived under § 14 of
the Securities Act.” Wilko, 346 U.S. at 435. In Scherk, the Court
had before it a case where both the District Court and the
Seventh Circuit found a forum selection clause invalid on the
strength of Wilko. Scherk, 417 US. at 510.
In distinguishing Wilko, the Supreme Court stated that
there were “significant and, we find, crucial differences between
the agreement involved in Wilko and the one signed by the
parties here.” Scherk, 417 U.S. at 515. The first and primary
difference that the Court relied upon was that “Alberto-Culver’s
contract ... was a truly international agreement.” Jd. The Court
reasoned that such a contract needs, as “an almost
indispensable precondition,” a “provision specifying in advance
the forum in which disputes shall be litigated and the law to be
applied.” Id. at 516 (emphasis added).
Moreover, the Supreme Court has explained that, in the
context of an international agreement, there is “no basis for a
judgment that only United States laws and United States courts
should determine this controversy in the face of a solemn
agreement between the parties that such controversies be
resolved elsewhere.” Jd. at 517 n.11. To require that ““American
“The Court recognized that an agreement to arbitrate “is, in effect, a
specialized kind of forum-selection clause.” Scherk, 417 U.S. at 519.
lla
standards of fairness’ must ... govern the controversy demeans
the standards of justice elsewhere in the world, and
unnecessarily exalts the primacy of United States law over the
laws of other countries.” Jd.
These passages from Scherk, we think, resolve the question
whether public policy reasons allow the Names to escape their
“solemn agreement” to adjudicate their claims in England
under English law. Scherk involved a securities transaction. Jd.
at 514 n.8. The Court rejected Wilko’s holding that the
antiwaiver provision of the '34 Act prohibited choice clauses. /d.
at 515-16. It also recognized that enforcing the forum selection
clause would, in some cases, have the same effect as choosing
foreign law to apply. Jd. at 516, 517 n.11. Yet the Court did not
hesitate to enforce the forum selection clauses. It believed that
to rule otherwise would “reflect a ‘parochial concept that all
disputes must be resolved under our laws and in our courts.”
Id. at 519 (quoting Bremen, 407 U.S. at 9). As the Supreme
Court has explained, ““[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.” Jd.
(quoting Bremen, 407 U.S. at 9).
Relying on Mitsubishi Motors Corp. v. Soler Chrysler
Plymouth, Inc., 473 U.S. 614, 634 (1985), the Names argue that
federal and state securities laws are of “fundamental
importance to American democratic capitalism.” They claim
that enforcement of the choice clauses will deprive them of
important remedies provided by our securities laws. The
Supreme Court disapproved of such an outcome, the Names
contend, when it stated 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 statutory remedies for
antitrust violations, we would have little hesitation in
condemning the agreement as against public policy.” Jd. at 637
n.19.
Without question this case would be easier to decide if this
footnote in Mitsubishi had not been inserted. Nevertheless, we
12a
do not believe dictum in a footnote regarding antitrust law
outweighs the extended discussion and holding in Scherk on the
validity of clauses specifying the forum and applicable law. The
Supreme Court repeatedly recognized in Scherk that parties to
an international securities transaction may choose law other
than that of the United States, Scherk, 417 at 516, 517 n.11, 519
n.13, yet it never suggested that this affected the validity of a
forum selection clause. See also Bremen, 407 U.S. at 13 n. 15
(recognizing that a forum selection clause also acts to select
applicable law); Milanovich v. Costa Crociere, S.pA., 954 F.2d
763, 767 n.7 (D.C. Cir. 1992) (“The Bremen involved a choice-
of-forum clause, but the Supreme Court recognized that
enforcing the provision would have the effect of subjecting the
contract to foreign law.”). °
Of course, were English law so deficient that the Names
would be deprived of any reasonable recourse, we would have
to subject the choice clauses to another level of scrutiny. See
Camival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991) (“It
bears emphasis that forum-selection clauses contained in form
passage contracts are subject to judicial scrutiny for
fundamental fairness.”). In this case, however, there is no such
danger. See Haynsworth, 121 F.3d at 969 (“English law provides
a variety of protections for fraud and misrepresentations in
securities transactions.”). Cf British Midland Airways Ltd. v.
5 The Names also point to Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer,
515 U.S. 528 (1995), as support for their position. In Vimar, the Supreme
Court expressed concern that a forum selection clause combined with a choice
of law clause would deprive a party of remedies under the Carriage of Goods
by Sea Act (“COGSA’), 46 U.S.C. § 1300 et seq. Jd. at 539. The Court’s
reasoning in Vimar, however, does not extend to the instant case as Virnar
involved COGSA, a statute designed to address international transactions. Id.
at 537 (“COGSA is the culmination of a multilateral effort to establish
uniform ocean bills of lading to govern the rights and liabilities of carriers and
shippers inter se in international trade.”) (internal quotations and citation
omitted).
13a
International Travel, Inc., 497 F.2d 869, 871 (9th Cir. 1974) (This
court is “hardly in a position to call the Queen’s Bench a
kangaroo court.”).
We disagree with the dramatic assertion that “[t}he
available English remedies are not adequate substitutes for the
firm shields and finely honed swords provided by American
securities law.” Richards v. Lloyd’s of London, 107 F.3d 1422,
1430 (9th Cir. 1997). The Names have recourse against both the
Member and Managing Agents for fraud, breach of fiduciary
duty, or negligent misrepresentation. Indeed, English courts
have already awarded substantial judgments to some of the
other Names. See Arubuthnott v. Fagan and Feltrim Underwriting
Agencies Ltd., 3 Re LR 145 (H.L. 1994); Deeny v. Gooda Walker
Ltd., Queen’s Bench Division (Commercial Court), The Times
7 October 1994. °
While it is true that the Lloyd’s Act immunizes Lloyd’s
from many actions possible under our securities laws, Lloyd’s is
not immune from the consequences of actions committed in
bad faith, including fraud. Lloyd’s Act of 1982, Ch. 14(3)(e)(i).
The Names contend that entities using the Lloyd’s trade name
willfully and fraudulently concealed massive long tail liabilities
in order to induce them to join syndicates. If so, we have been
cited to no authority that Lloyd’s partial immunity would bar
recovery.
Cc
The addition of RICO claims does not alter our
conclusion. This court has already held that the loss of RICO
claims does not suffice to bar dismissal for forum non
conveniens. Lockman Found. v. Evangelical Alliance Mission,
930 F.2d 764, 768-79 (9th Cir. 1991). We agree with our sister
circuit that has considered this issue and extend the logic of
Lockman to this case. Roby, 996 F.2d at 1366.
6 The Names complain that the Member and Managing Agents are insolvent.
If so, this is truly unfortunate. It does not, however, affect our analysis of the
adequacy of English law.
14a
D
The Names also argue that the choice clauses were the
product of fraud. They claim that at the time of signing the
General Undertaking, Lloyd’s knew that the Names were
effectively sacrificing valid claims under U.S. law by signing the
choice clauses and concealed this fact from the Names. Had the
Names known this fact, they contend, they never would have
agreed to the choice clauses. The Names never allege, however,
that Lloyd’s misled them as to the legal effect of the choice
clauses. Nor do they allege that Lloyd’s fraudulently inserted
the clauses without their knowledge. Accordingly, we view the
allegations made by the Names as going only to the contract as
a whole, with no allegations as to the inclusion of the choice
clauses themselves.
Absent such allegations, these claims of fraud fail. The
Supreme Court has noted that simply alleging that one was
duped into signing the contract is not enough. Scherk, 417 U.S.
at 519 n.14 (The fraud exception in Bremen “does not mean
that any time a dispute arising out of a transaction is based
upon an allegation of fraud ... the clause is unenforceable.”).
For a party to escape a forum selection clause on the grounds of
fraud, it must show that “the inclusion of that clause in the
contract was the product of fraud or coercion.” Jd. (citing Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967))
(emphasis in original). See also Prima Paint, 388 U.S. at 404
(“[T]he statutory language [of the United States Arbitration
Act] does not permit the federal court to consider claims of
fraud in the inducement of the contract generally.”).
E
The Names object that Moseley v. Electronic & Missile
Facilities, Inc., 374 U.S. 167 (1963), requires the district court to
adjudicate the claims of fraud before dismissal. In Moseley, the
Supreme Court found that “it seems clear that the issue of
fraud should first be adjudicated before the rights of the parties
15a
under the [contracts] can be determined.” Jd. at 171. Taken out
of context, this statement would seem to support the Names’
position.
When viewed in context, however, it becomes clear that
this statement in fact provides no aid to the Names. The
Supreme Court required an initial adjudication of the fraud
claim after noting that “no request has been made here for the
enforcement of the arbitration agreement included within the
[contracts.]” Jd. at 170. It was only “[w]ith the pleadings in this
posture” that the Supreme Court required a trial on the fraud
claims. Jd. at 171. Here Lloyd’s has clearly and vigorously called
for the enforcement of the choice clauses. Accordingly, Moseley
does not apply to the instant case and the Names are not
entitled to a trial on their claims of fraud.
iil
Because we decide that the district court correctly ruled to
enforce the choice clauses, the request to enter default against
the unincorporated association is moot.
THOMAS, Circuit Judge, with whom Judge Pregerson and
Judge Hawkins join, dissenting.
The majority espouses a reasonable foreign policy, but one
which emanates from the wrong branch of government.
Congress has already explicitly resolved the question at hand. In
the Securities Act of 1933 and the Securities Exchange Act of
1934 (the “Acts”), Congress expressly provided that investors
cannot contractually agree to disregard United States securities
law. Thus, in applying the “reasonableness” policy weighing
approach of M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1
(1972), the majority displaces Congress’ specific statutory
directive. Furthermore, even assuming that the Bremen analysis
applies here, the circumstances surrounding this dispute compel
l6a
the conclusion that enforcement of the choice clauses would be
unreasonable. Accordingly, I respectfully dissent.
I.
Unlike the conflict the Bremen Court envisioned between
statutes and forum selection clauses, the Acts do not merely
declare “a strong public policy” against the waiver of
compliance with United States securities laws. Rather, the Acts
explicitly and unconditionally prohibit such a waiver. The
language of the Securities Act of 1933 is clear and
unambiguous:
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 restriction. See 15 U.S.C. § 78cc(a).
Absent these antiwaiver provisions, courts could
appropriately examine choice-of-forum clauses in investment
contracts under a Bremen analysis to determine whether they
violated the strong public policy of the United States as
embodied in our securities law. However, the Acts’ antiwaiver
provisions decisively alter this inquiry. With adoption of those
sections, Congress announced a per se rule that American laws
cannot be ignored in this context. Courts should not employ
amorphous public policy to emasculate plain statutory
language. “Under our constitutional framework, federal courts
do not sit as councils of revision, empowered to rewrite
legislation in accord with their own conceptions of prudent
public policy.” United States v. Rutherford, 442 U.S. 544, 555
(1979). Rather, “[o]nly when a literal construction of a statute
yields results so manifestly unreasonable that they could not
fairly be attributed to congressional design will an exception to
statutory language be judicially implied.” Id. Because Congress
quite reasonably intended that our securities laws be enforced
17a
even when a salesperson managed to obtain an investor's
waiver, we “have no license to depart from the plain language”
of the Acts. Id.
The majority turns this analysis inside out, by holding that
underlying antiwaiver public policy eviscerates specific anti-
waiver statutory provisions. Disregarding this express
prohibition to assess whether enforcement of the choice clauses
contravenes the underlying policy against waiver is akin to
overlooking the plain language of a statute to consider its
legislative history, a clearly disfavored method of statutory
interpretation. See Connecticut Nat'l Bank v. Germain, 503 U.S.
249, 253-54 (1992) (“We have stated time and again that courts
must presume that a legislature says in a statute what it means
and means in a statute what it says there.... When the words of a
statute are unambiguous, then, this first canon is also the last:
judicial inquiry is complete.... It would be dangerous in the
extreme to infer ... that a case for which the words of an
instrument expressly provide, shall be exempted from its
operation.”) (citations and internal quotation marks omitted).
As the majority concedes, the explicit language of the Acts bars
the waiver that the choice clauses would effectuate here. Thus,
the “unadorned words” of the Acts’ antiwaiver provisions
should not be limited by the antiwaiver public policy they
impliedly express, see Germain, 503 U.S. at 254.
The majority’s fears notwithstanding, it is unnecessary to
displace Congress’ reasoned judgment in order to contract the
“boundless” reach of United States securities laws. First,
because plaintiffs alleging securities fraud will at some point
have to establish that the disputed transactions involved
“securities,” as defined under United States law, plaintiffs
cannot gain unfettered access to the protection of the securities
laws simply by alleging that they have purchased securities.
Second, the plaintiffs here do not seek to invoke the Acts’
substantive remedies in the context of transactions that enjoy
only an incidental nexus with the United States. Lloyd’s
recruited the plaintiffs, residents of the United States, in the
vee
18a
United States, often using United States brokerage firms and
recruiters, and availed itself of the United States mails to
disseminate information about becoming a Name. In short,
Lioyd’s purposefully devoted considerable time and resources
to recruiting American investors through specifically American
media. To penalize the plaintiffs in this case based upon a
hypothetical scenario that differs dramatically from the
circumstances at issue here would work an unjust deprivation of
the plaintiffs’ rights under the Acts.
The majority argues that the Supreme Court’s reliance on
Bremen in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974),
should control here. However, the majority overlooks the
crucial differences between the instant dispute and the facts
underlying Scherk. Scherk involved a contract that contained an
agreement to arbitrate any disputes arising out of the contract
in Paris, France. This contract specified that “[t]he laws of the
State of Illinois, U.S.A. shall apply to and govern this
agreement, its interpretation and performance.” Scherk, 417
U.S. at 508. In contrast, the choice clauses here not only select
the forum — the courts of England — but mandate that English
law shall govern any controversy. Thus, the reasoning and
conclusions of Scherk should not extend to this case. To the
extent that the Scherk Court approved a hypothetical choice-of-
law clause that prescribed the application of foreign law, such
approval was dicta and cannot bind the parties here.
Furthermore, the Lloyd’s underwriting agreements had
substantial connections with the United States, in contrast with
the sparse contacts between the United States and the contract
in Scherk. In Scherk, an American company made an initial
contact with Scherk, a German citizen, in Germany, pursued
negotiations with Scherk in both Europe and the United States,
and finally executed a contract in Vienna, Austria, providing for
the transfer of the ownership of Scherk’s enterprises. The
closing of this transaction occurred in Geneva, Switzerland. In
comparison, the sole component of Lloyd’s campaign to recruit
American Names that took place in England was the committee
ae 3
19a
meeting that new Names attended in London. Otherwise, every
aspect of the solicitation occurred in the United States. To
characterize this extensive and multifaceted recruitment
campaign as the mere receipt of “solicitations,” as does the
majority, is to understate the impact of Lloyd’s activities in the
United States.
The Scherk majority itself recognized that a contract with
“insignificant or attenuated” contacts with foreign countries
might well prompt a refusal to enforce a forum selection clause,
let alone a clause choosing foreign law. Scherk, 417 U.S. at 517
n.11. The Court observed: “Judicial response to such situations
can and should await future litigation in concrete cases.” Id.
The instant case offers just such a concrete opportunity to
assess the enforceability of the choice clauses independently of
the Scherk methodology and holding — an opportunity this
court should use to effectuate Congress’ explicit statutory
directive.
Unfortunately, the majority has chosen to contravene an
unequivocal Congressional mandate, founded on an
interpretation of underlying public policy. However reasonable
that policy, it cannot supplant clear, unambiguous statutory
language.
il
In addition to violating the Acts’ express antiwaiver
provisions, the choice clauses are unenforceable because they
are ““unreasonable’ under the circumstances.” Bremen, 407
U.S. at 10. Initially, the Supreme Court has twice stated that the
type of clauses at issue here are invalid when they prospectively
disable parties from pursuing statutory remedies. See Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637
n.19 (1985), quoted in Vimar Seguros y Reaseguros, S.A. v. M/V
Sky Reefer, 515 U.S. 528, 540 (1995). Indeed, in Virnar, the Court
went so far as to declare that “[t]he relevant question” was
“whether the substantive law to be applied [would] reduce the
20a
carrier’s obligations to the cargo owner below what [the
Carriage of Goods by Sea Act] requires.” Virnar, 515 U.S. at
539. In other words, the Court implicitly rejected the argument
that a forum selection clause must be enforced even if some of
the claims that could have been brought in the forum of the
lawsuit must be forfeited.
As applied here, the logic of Mitsubishi and Vimar
militates against enforcing the choice clauses. Not only do the
choice clauses preclude the plaintiffs from seeking the
substantive remedies the Acts offer, but the protections they
provide under English law are markedly inferior to the Acts’.
For instance, English law recognizes no remedy for the failure
to register securities as required by section 12(1) of the
Securities Act of 1933. Nor is there any English remedy against
Lloyd’s for negligent misrepresentation as provided by section
12(2) of the Securities Act of 1933, because the 1982 Lloyd’s
Act expressly immunizes Lloyd’s from any claim for “negligence
or other tort” unless bad faith was involved. ' Third, no
“controlling person” liability exists in England, whereas section
15 of the Securities Act of 1933 and section 20(a) of the 1934
Securities Exchange Act impose such liability. Thus, the choice
clauses should not be enforced, because they afford a level of
securities laws in turn reveal additional public policy reasons for
invalidating the choice clauses. Enforcing the choice clauses
gravely disadvantages American businesses, because foreign
businesses, like Lloyd’s, can recruit investors without expending
! While the plaintiffs may sue Members’ and Managing Agents, who are not
exempt from the 1982 Lloyd’s Act, the Members’ and Managing Agents are
insolvent. The majority regards this insolvency, if true, as “truly unfortunate,”
but deems it irrelevant to the “analysis of the adequacy of English law.” See
supra note 6. However, it is equally reasonable to find English law all the
more inadequate to address the plaintiffs’ grievances, because the insolvency
of one class of potential defendants so materially damages the plaintiffs’
chances for recovery.
tae Age Jae Kop NE
a agit Sa ea tis Sete
2la
the time and money involved in fulfilling the requirements of
the Acts — a burden that American businesses cannot legally
evade. Invalidating the choice clauses therefore eliminates any
artificial advantage that Lloyd’s may have enjoyed in competing
in the American insurance market. In addition, the Acts furnish
a necessary regulatory check upon an otherwise virtually
autonomous organization. As the British government itself
concedes, Llioyd’s is a self-governing body charged with
regulatory functions. Hence, a refusal to enforce the choice
clauses would not reflect a lack of deference to English law and
courts, but would simply arise from the realization that
externally imposed restraints may sometimes be appropriate to
control the behavior of a self-regulating organization.
The majority rejects the applicability of Mitsubishi and
Vimar to the choice clauses on two bases. First, the majority
assails footnote 19 in Mitsubishi as mere dictum which cannot
“outweig{h] the extended discussion and holding in Scherk on
the validity of clauses specifying the forum and applicable law.”
Second, the majority objects to the extension of Vimar to the
instant case, because Virnar involved the Carriage of Goods by
Sea Act (“COGSA’), a statute attempting to ensure uniformity
in international transactions.
This reasoning stands on tenuous ground. Initially, while
footnote 19 in Mitsubishi was not incorporated into the Court’s
actual holding, the Court left no doubt about its position on this
issue by reiterating it in the entirely different setting of Vimar.
Hence, the Court implicitly indicated that its concerns about a
potential deprivation of plaintiffs’ access to statutory remedies
were limited to neither the antitrust nor the COGSA context.
Moreover, as explained above, to the extent that the Scherk
Court speculated about the enforceability of a contractual
provision selecting foreign law, such a discussion was dictum.
As such, it warrants no greater deference than footnote 19 of
Mitsubishi.
Finally, the majority errs in characterizing the Acts as
purely domestic, as opposed to the internationally-oriented
22a
COGSA. Congress intended the Securities Act of 1933 to bring
the United States into line with the protections other nations
gave the security-buying public, by protecting American
investors against fraud and misrepresentation in the sale of
securities in interstate and foreign commerce alike. In fact,
Congress observed that the necessity for such legislation arose
from “the fact that billions of dollars [had] been invested in
practically worthless securities, both foreign and domestic,
including those of foreign governments, by the American public
through incomplete, careless, or false representations.” The
consequence, Congress concluded, was “dire national distress.”
S. Rep. No. 47, at 2 (1933). Not only does this legislative history
establish the international, as well as domestic, perspective of
the Securities Act of 1933, but it drives home the necessity for
invalidating the choice clauses here. Allegations of Lloyd’s
“incomplete, careless, or false representations” about the
plaintiffs’ participation in the English insurance market are
precisely the issue in this case. Most importantly, given the
hundreds of millions of dollars that American Names have
invested in Lloyd’s underwriting agreements, the “dire national
distress” that originally prompted Congress to adopt securities
regulation legislation may well make an unwanted
reappearance.
Ii.
Increasing access to international capital markets is a
laudable goal, but one need not trample on United States
securities laws to achieve it. Indeed, securitization of insurance
risk is increasing, with some public offerings involving Lloyd’s
exposures. However, these insurance risk-backed securitized
investments are marketed in conformance with securities law,
with full disclosure to the investor. Indeed, the facts alleged in
this case make a powerful argument for vigorous application of
American securities laws. A company, whether foreign or
domestic, should not be able to mislead American investors
23a
with impunity into assuming unlimited liability for known losses
with no possibility of financial gain.
When Congress voided waiver clauses, it meant what it
said. The antiwaiver provisions of the Acts, whether as clear
statutory directives or as embodiments of public policy, render
the choice clauses unenforceable. The district court’s dismissal
of the plaintiffs’ claims under the Acts should be reversed.
Hence, I respectfully dissent.
LLOYD’S OF LONDON, an
unincorporated association, et al.,
Defendants-Appellees.
No. 95-55747
D.C. No.
CV-94-01211-
IEG
de de de de de ee ee ee
JOHN R. NorTON, III;
Doris S. NORTON; DIANE
B. ALLISON; CHARLES G.
BENTZIN; F.M. BINKLEY;
DELMAR A. BRADY; SAMME
JO BRADY; GEORGE
MANING CLOSE; RUSSELL
M. COLLINS; PETER
DWARES; ROBERT FLESVIG;
DONALD P. GALLOP;
CHARLES A. GERLACH, JR.;
ROBERT W. GERWIG;
RICHARD C. HENRY;
ee ee
Z
2
‘
~
MICHAEL C. HIRSH;
R. WILLIAM JOHNSTON;
JAMES H. KAYIAN;
JOANNE S. KAYIAN- OLOONEY; SUZANNE
KAYIAN; LOWELL CONRAD
LUNDELL; JUDITH M. OTT;
H.E. RAINBOLT; DAVID L.
ROSENBLATT; RAY MORSE
SANDERSON; CLAIRE
TILLMAN; WARREN G.
VANDER VOORT; PETER
BECK; HAROLD FRANZ ILG;
JOHN C. GRIFFIN; TED
KOSLOFF; FRANCIS J.
MILON; GLEN R. MOGAN;
MELANIE M. NORTON;
JOSEPH F. WELLER,
Plaintiffs-Appellants,
Vz.
LLOYD’s OF LONDON, an unincorporated
association; CORPORATION OF LLOYD’s,
aka Society of Lloyd’s, aka The
Society and Council of Lloyd’s,
Defendants-Appellees.
BEFORE: GOODWIN, Circuit Judge.
Appeliant’s Motion to stay the mandate pending petition
for certiorari is GRANTED.
Ne Ne Ne re ee Sree See” See” Sree” See” Sree” See” Seen” See” Se” See” Sea” Sere” See” See” See” See” See” See” “eee” See” See”
26a
APPENDIX C
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
)
ALAN RICHARDS, et al.,
Plaintiffs-Appellants, No. 95-55747
v. ) D.C. No.
) CV-94-01211-IEG
LLOYD’S OF LONDON, an
unincorporated association, et al.,
Defendants-Appellees.
JOHN R. NORTON, III; Doris S.
NORTON; DIANE B. ALLISON;
CHARLES G. BENTZIN; F.M. BINKLEY;
DELMAR A. BRADY; SAMME JO BRADY;
GEORGE MANING CLOSE; RUSSELL M.
COLLINS; PETER DWARES; ROBERT
FLESVIG; DONALD P. GALLOP;
CHARLES A. GERLACH, JR.; ROBERT W.
GERWIG; RICHARD C. HENRY;
MICHAEL C. HIRSH; R. WILLIAM
JOHNSTON; JAMES H. KAYIAN;
JOANNE S. KAYIAN-OLOONEY; SUZANNE
KAYIAN; LOWELL CONRAD LUNDELL;
JUDITH M. OTT; H.E. RAINBOLT;
DAVID L. ROSENBLATT; RAY MORSE
SANDERSON; CLAIRE TILLMAN;
WARREN G. VANDER VOORT; PETER
BECK; HAROLD FRANZ ILG; JOHN C.
GRIFFIN; TED KOSLOFF; FRANCIS J.
MILON; GLEN R. MOGAN; MELANIE M.
NORTON; JOSEPH F. WELLER,
Plaintiffs-Appellants,
No. 95-56467
D.C. No.
CV-95-00952-IEG
OPINION
i dd ee ee ee he ee ee ee ee eT oe ee ee ee ee a
27a
v.
LLOYD’s OF LONDON, an unincorporated
association; CORPORATION OF LLOYD’s,
aka Society of Lloyd’s, aka The
Society and Council of Lloyd’s,
Defendants-Appellees.
Nee ee” Sener” See” eee” See” Nee See”
Appeals from the United States District Court
for the Southern District of California
Irma E. Gonzalez, District Judge, Presiding
Argued and Submitted
November 5, 1996—Pasadena, California
Filed March 6, 1997
Before: Alfred T. Goodwin, Charles Wiggins and
John T. Noonan, Circuit Judges.
NOONAN, Circuit Judge.
Alan Richards and 573 other individuals (collectively, the
plaintiffs or the Names) brought suit against the Corporation of
Lloyd’s (Lloyd’s) and against Lloyd’s of London, a community
of enterprises characterized by the plaintiffs as an
Unincorporated Association (the Unincorporated Association).
The plaintiffs alleged securities fraud under the Securities Act
of 1933, 15 U.S.C. § 77a (the 1933 Act) and under the Securities
Exchange Act of 1934, 15 U.S.C. § 78a (the 1934 Act). The suit
also alleged related violations of the Racketeer Influenced and
Corrupt Organizations Act of 1970, 18 U.S.C. § 1961 et seq.
(RICO). The plaintiffs further alleged breach of state Blue Sky
28a
laws, breach of fiduciary duty, and common law fraud. On
motion of the defendants under Fed. R. Civ. P. 12(b)(3) the
district court dismissed the plaintiffs’ action.
The primary question presented on appeal is whether
forum selection and choice of law provisions in the contracts
signed by the Names (the Choice Clauses) require the
application of English law to the plaintiffs’ claims and the
confinement of these claims to the courts of England. Holding
that the Choice Clauses are void because they violate the 1933
Act and the 1934 Act, we reverse the district court’s dismissal of
the Names’ federal claims. We affirm the district court’s
dismissal of the claims under the Blue Sky laws and the
common law claims. We remand for consideration by the
district court the amenability to suit of the Unincorporated
Association.
Without passing on the truth of the allegations, we set out
the plaintiffs’ case as it is alleged by them.
THE ALLEGATIONS
The Unincorporated Association is engaged in the
business of writing insurance and reinsurance. Its principal
place of business is London, England. Its principal parts consist
of the corporation (Lloyd’s, the other defendant in this case);
underwriting agents; brokers; and syndicates of underwriters.
The corporation, Lloyd’s, is governed by the Council for
Lloyd’s; the Council has “virtually complete control” over all of
the operations of Lloyd’s, including the operations of the
underwriting agents and the brokers, and “virtually dictates the
exact form of agreements and contents of agreements that are
to be used ... and dictates not only the policies but the practices
of those who constitute the Lloyd’s community.”
The members of each syndicate underwriting insurance
are known as Names. They are divided into Working Names, a
group of insiders who devote essentially full time to the
business of insurance at Lloyd’s, and External Names, recruited
29a
from all over the world. The Working Names control Lloyd’s.
The External Names are “totally passive investors” and “are
absolutely prohibited” from being involved in the “underwriting
process.” They make a deposit, usually in the form of a letter of
credit, equal to a percentage of the premium income they
expect to receive in a given year from the underwriting
syndicate of which they are members. They have several, not
joint, liability on the policies written by the syndicate. The
liability of each Name is unlimited.
Between 1970 and 1993 Lloyd’s sought to increase its
underwriting capacity and to do so undertook “a major
recruitment program in the United States.” Representatives of
Lloyd’s came to the United States to carry out the recruitment
by offering investment contracts by which residents of the
United States might become External Names at Lloyd’s. Lloyd’s
provided printed information on its history and operations as
part of the campaign. The United States mails were used to
provide this information and to send questionnaires,
applications, and agreements to potential Names resident in the
United States. Brokerage firms in the United States were paid
commissions by Lloyd’s to recruit Names in this country.
Existing Namc¢s in the United States were also given financial
incentives to recruit additional Names here. The information
furnished by Lloyd’s did not meet the standards required of
prospectuses by the Securities Exchange Commission (the
SEC). The investment contracts offered by Lloyd’s were
securities but were not registered under either federal or state
law.
As a result of its efforts, Lloyd’s raised over $600 million in
letters of credit and deposits furnished by residents of the
United States who became External Names. Lloyd’s also
enormously expanded its underwriting capacity by securing the
unlimited liability on insurance contracts from Lloyd’s of 3,196
tesidents of the United States recruited to become External
Names at Lloyd’s. The plaintiffs are a portion of those so
recruited.
30a
Plaintiffs, the Names of this case, were defrauded by
Lloyd’s in at least one of two ways: (1) Lloyd’s put them on
syndicates reinsuring long tail asbestos and toxic waste claims
which had arisen prior to these Names becoming members of
such syndicates; (2) Lloyd’s put them on syndicates carrying an
unusual concentration of risks because of a reinsurance scheme
(the LMX Spiral) that operated as a species of scam. In neither
case did Lloyd’s inform the plaintiffs of the magnitude of their
exposure although Lloyd’s was aware of the magnitude. In each
case Lloyd’s acted to benefit Working Members and other
insiders at Lloyd’s while pushing large liabilities foreseen by
Lloyd’s, but undisclosed by it, upon the unsuspecting and
uninformed External Names of whom the plaintiffs form a
portion.
In 1986, these plaintiffs each were required by Lloyd’s to
execute in the United States a contract with Lloyd’s entitled
“General Undertaking.” Paragraph 2.1 of this agreement reads
as follows: “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.” Paragraph
2.2 of this agreement reads in relevant part as follows: “Each
party 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....” These two provisions, the Choice Clauses, had not
been in General Undertakings prior to 1986 but that group of
plaintiffs who had become Names prior to 1986 and signed
earlier General Undertakings without the Choice Clauses were
required by Lloyd’s to execute the 1986 form as a condition of
remaining as Names. The group of plaintiffs who became
Names in 1986 and thereafter were required by Lloyd’s to
execute the 1986 form as a condition of becoming Names. To
neither group of plaintiffs did Lloyd’s disclose the information
3la
it possessed as to the fraud or frauds being practised on them.
The Choice Clauses were themselves obtained by fraud.
Such are the plaintiffs’ allegations.
PROCEEDINGS
On October 9, 1994 the plaintiffs filed in the Southern
District of California an amended complaint containing these
allegations. The Unincorporated Association did not answer,
and the plaintiffs moved for a default judgment against it.
Invoking the Choice Clauses, Lloyd’s moved to dismiss on the
grounds of improper venue, also on grounds of forum non
conveniens and/or res judicata. Various declarations were
submitted by both sides as well as pleadings and judgments in
other cases. In argument, Lloyd’s relied on the Choice Clauses
and forum non conveniens.
On April 28, 1995 the district court entered its order
dismissing the complaint. “Forum-selection clauses,” the court
reasoned, “are presumptively valid,” to be set aside only if
“unreasonable” under the circumstances. Such circumstances,
the court found, had not been shown here. Relying on Roby v.
Corporation of Lloyd’s, 996 F.2d 1353 (2d Cir.), cert. denied, 510
U.S. 945 (1993), the court held that the remedies available in
England were sufficient to protect the American investors.
Refining the Second Circuit’s reasoning in Roby, the court
noted that the SEC’s inaction towards Lloyd’s “undercuts or
dilutes the strength of the policy argument that insufficient
deterrence exists for Lloyd’s” under the laws of England. The
court found insufficient evidence to support the allegation that
the Choice Clauses themselves were obtained by fraud.
The plaintiffs moved for reconsideration. On August 4,
1995 the district court denied this motion, adding: “The
Dismissal Order dismissed plaintiffs’ complaint in its entirety
and as to all parties. Thevefore the court dismisses as moot”
plaintiffs’ motion for a default judgment against the
Unincorporated Association.
The plaintiffs appeal.
ANALYSIS
The validity of the Choice Clauses is first attacked by the
plaintiffs on the ground that these clauses were themselves
procured by fraud. On this point as it affects the jurisdiction of
the district court, the allegations of the plaintiffs are not to be
taken as true, as would be the rule in an ordinary motion to
dismiss under Rule 12. To the contrary, we have held that such
clauses are good, “[a]bsent some evidence submitted by the
party opposing enforcement of the clause to establish fraud,
undue influence, overweening bargaining power, or such
serious inconvenience in litigating in the selected forum so as to
deprive the party of a meaningful day in court....” Argueta v.
Banco Mexicano, 87 F.3d 320, 324 (9th Cir. 1996) (italics in
_ Original) (quoting Pelleport Investors, Inc. v. Budco Quality
Theatres, Inc., 741 F.2d 273, 280 (9th Cir. 1984)). The district
court here found that the plaintiff had not produced sufficient
evidence of fraud in the procurement of the Choice Clauses.
We defer to this factual finding. For purposes of defeating the
Rule 12(b)(3) motion and for purposes of this appeal (but not
as the law of the case because the plaintiffs have not had the
chance to present their full case), the Choice Clauses must be
deemed not obtained by fraud.
We express no view on whether the Names’ participation
in Lloyd’s constitutes the purchase of a “security” within the
meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. For purposes of this appeal, we assume
the truth of the Names’ allegation that Lloyd’s was engaged in
the offer and sale of securities. Determining whether tne
Names can prove this allegation will require further
development of the record in the district court at trial or on
summary judgment.
We turn to the validity of these clauses under the
controlling statutes. Doing so, we take the plaintiffs’ allegations
33a
as to their causes of action to be true. We look not at evidence
— for the plaintiffs do not have to prove their case at the
pleading stage — but at what the plaintiffs say their case is.
The Statutes’ Bar. Section 14 of the 1933 Act provides:
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 [the SEC] shall be void.
15 U.S.C. § 77n. The bar of Section 29(a) of the 1934 Act is
substantially the same. 15 U.S.C. § 78cc(a). The Choice Clauses
operate to effect such waivers. Accordingly, under the precise
terms of these two statutes, the Choice Clauses are void.
The district court made an error of law in supposing that
the Choice Clauses were unenforceable only if unreasonable.
Congress had already determined that such clauses were void. It
was not for a court to weigh their reasonableness, not for a
court to say whether they offended any policy of the United
States. The policy decision had been made by the legislature.
Lloyd’s asks us to look at Scherk v. Alberto-Culver Co., 417
U.S. 506 (1974) where the Supreme Court, 5-4, held that in “an
international commercial transaction” the parties’ agreement to
arbitrate before the International Chamber of Commerce in
Paris any controversy or claim that “shall arise out of this
agreement” should be upheld despite the plaintiffs’ reliance on
§ 10b of the 1934 Act. Lloyd’s overlooks both the facts and the
reasoning of this precedent. As to the facts: the property being
purchased was that of three businesses organized under the
laws of Germany and Lievhtenstein. Negotiations for the
contract took place in the United States, England and Germany
and involved consultations with Jegal and trademark experts
from these countries and from Liechtenstein. The contract was
signed in Austria. The businesses being bought were engaged in
activities, “largely if not entirely, directed to European
markets.” Jd. at 515.
34a
As to the reasoning: the Supreme Court stressed “the
orderliness and predictability essential to any international
business transaction” and the dangers presented by a “parochial
refusal” to “enforce an international arbitration agreement.”
Id. at 516. The Supreme Court quoted with approval from The
Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972): “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.” The Supreme Court said that
for these reasons it held “that the provisions of the Arbitration
Act cannot be ignored in this case.” Scherk, 417 U.S. at 513.
The Supreme Court relied on this act of Congress, 9 U.S.C. § 1,
which it found to represent a policy not easily reconcilable with
the Securities Exchange Act. Jd. at 512 (referring to the Court’s
earlier statement in Wilko v. Swan, 346 U.S. 427 (1953)). With
two federal statutes in conflict, the considerations of
international commerce tipped the balance. An exception to
“the clear provisions of the Arbitration Act” would not be
accepted. Scherk, 417 U.S at 517.
The fragmentary contacts with the United States of the
contract in Scherk distinguish that contract from the contracts
here where, according to the allegations we must accept at this
state of the pleadings as true, the offerees were recruited in the
United States, agents of the offeror were paid in the United
States, documents material to the contracts were mailed in the
United States and executed in the United States, and residents
of the United States invested large sums of money and
remained liable to the full extent of their assets for indefinite
amounts of money. Factwally distinct from Scherk, the case is
also distinct in terms of the statutes involved. As is apparent
from the Supreme Court’s reasoning, the Court in Scherk had
to decide which one of two federal statutes to apply. It chose to
apply the Arbitration Act. It did not weigh reasonableness or
pit amorphous policy against a command of Congress.
Is there a significant difference between a policy objection
to enforcement of the antiwaiver bars and a statutory obstacle to
35a
such enforcement? We believe there is. Where a statute exists, a
policy has been given form and focus and precise force. A
statute represents a decision by the elected representatives of
the people as to what particular policy should prevail, and how.
A policy objection represents judicial reasoning in the area
where the federal statutes, if they are to the contrary, must rule.
A statutory obstacle represents a legislative determination that
is of at least equal weight with another statute. Consequently,
what was decided when the Arbitration Act stood in the way of
the antiwaiver bars is not helpful when no statute stands in the
way of their enforcement.
The Supreme Court in Mitsubishi Motors v. Soler Chrysler-
Plymouth, 473 U.S. 614, 637 n.15 (1985) has already declared in
dicta in an antitrust case what it thinks of contract clauses
operating in an international transaction, as the Choice Clauses
do here, contrary to the statutes of the United States: “We
merely note 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 statutory remedies for antitrust
violations, we would have little hesitation in condemning the
agreement as against public policy.” There is no question that
the Choice Clauses operate in tandem as a prospective waiver
of the plaintiffs’ remedies under the 1933 and 1934 Acts. If the
Supreme Court would condemn such clauses where they work
against a public policy embodied in statutes even though the
statutes themscives do not void the clauses, a fortiori the
Supreme Court would condemn similar clauses when they run
in the teeth of two precise statutory provisions making them
void.
There is an additional reason why application of the
Choice Clauses is barred by precedent that expiicitly refers to
the statutory bars of the 1933 and 1934 Acts: In securities cases
upholding arbitration clauses by virtue of the Arbitration Act,
the Supreme Court has observed that arbitration changes
procedure but that the arbitrators will apply the substantive
securities law of the United States where that law is applicable.
36a
Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S.
477, 481 (1989); Shearson/American Express v. McMahon, 482
U.S. 220, 232 (1987). In Scherk because of the slight contacts
with the United States the proper law to be applied was
uncertain and so could be fixed by agreement. See Scherk, 417
U.S. at 516. The strong implication is that where there is
substantial contact with the United States even the Arbitration
Act could not authorize the waiver of the substantive
protections of the 1933 and 1934 Acts. What the Supreme
Court has in mind by “substantive” provisions of these Acts is
illustrated by “the provision in section 12(2) of the 1933 Act
placing on the seller the burden of proving lack of scienter
when a buyer alleges fraud.” Rodriguez de Quijas, 490 U.S. at
481. By this test, the Choice Clauses require the waiver of
substantive provisions of the 1933 and 1934 Acts and are
consequently void.
Lioyd’s urges not as controlling but persuasive precedent
the decision of other circuits in cases pursued by certain Names
against Lloyd’s. The first of these, Riley v. Kingsley Underwriting
Agencies, Ltd., 969 F.2d 953 (10th Cir. 1992), cert. denied, 506
U.S. 1021 (1992) is a federal securities case against Lloyd’s
where the court did not discuss the statutory bars and where the
issue was Clouded by the presence of a clause requiring
arbitration. It is not an apt precedent here.
We recognize that our holding creates a conflict with the
interpretation of the Lloyd’s Choice Clauses in other cases. E.g.,
Allen v. Lloyd’s of London, 94 F.3d 923 (4th Cir. 1996); Bonny v.
Society of Lloyd’s, 3 F.3d 156 (7th Cir. 1993), cert. denied, 510
U.S. 1113 (1994); and Roby v. Corporation of Lloyd’s, 996 F.2d
1353 (2d Cir.), cert. denied, 510 U.S. 945 (1993). Although we
do not lightly deviate from the conclusions of our fellow
circuits, we are convinced that those cases improperly disregard
the statutory antiwaiver provisions of the Securities Acts. A
comprehensive review of these cases has recently come to the
same critical conclusion. Darrell Hall, Note, No Way Out: An
Argument Against Permitting Parties to Opt Out of U.S. Securities
37a
Law In International Transactions, 97 Colum. L. Rev., 57, 74-78
(1997).
These other circuit courts examined whether the Choice
Clauses are enforceable by applying an analysis announced in
The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). The
Bremen held that choice-of-forum clauses should be enforced
against a party unless it could show that enforcement would be
unreasonable or unjust, or that the clause was invalid due to
fraud or overreaching. Jd. at 15. These other circuit courts
interpreted The Bremen and Carnival Cruise Lines, Inc. v. Shute,
499 U.S. 585, 595 (1991), as setting forth a “reasonableness”
test to evaluate choice-of-forum clauses. Allen, 94 F.3d at 928;
Bonny, 3 F.3d at 160; Roby, 996 F.2d at 1363. One factor making
a clause “unreasonable,” and hence unenforceable, is if
enforcement of the clause would contravene a strong public
policy of the forum state. Allen, 94 F.3d at 928; Bonny, 3 F.3d at
160; Roby, 996 F.2d at 1363. In The Bremen, the Supreme Court
stated 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, whether
declared by statute or by judicial decision.” Bremen, 407 U.S. at
15.
Applying this test, these other circuits have determined
that the American securities laws do not prevent application of
the Choice Clauses. Deciding that the remedies available under
English law are adequate to effectuate the anti-fraud purposes
of the American securities laws, these circuit courts concluded
that the Choice Clauses were reasonable and should be
enforced.
For instance, as posed by the Seventh Circuit in Bonny,
“the fundamental question” became whether the remedies
available in England subverted “the public policy” of the Acts.
Bonny, 3 F.3d at 161. The court found that the plaintiffs could
sue Lloyd’s in England for fraud and for breach of contract;
that they could sue Member’s Agents for breach of fiduciary
duty; that upon application of [an English] Secretary of State
38a
they might obtain an injunction and remedial orders; and that,
upon a finding of criminal liability under the [English] Financial
Services Act, they “could potentially receive some
compensation for their injuries. More importantly, such
criminal penalties serve as an important deterrent against
exploitation of United States investors.” Jd. In our view,
however, the reasonableness of the Choice Clauses is not
determinative of their enforceability. The Securities Acts’
antiwaiver provisions themselves render the Choice Clauses
void, making it unnecessary to examine whether enforcement of
the clauses would be reasonable under the test set forth in The
Bremen and Carnival. Notably, The Bremen did not involve the
applicability of a statutory anti-waiver provision like that
contained in the Securities Acts. The Supreme Court was
reviewing a judgment of the Fifth Circuit holding that this
choice-of-forum clause contained in an international admiralty
contract was unenforceable because it was contrary to public
policy.
Reading The Bremen closely dispels the notion that choice-
of-forum clauses are generally disfavored. The Bremen, 407 U.S.
at 10. Instead, those clauses are presumed valid, though the
“reasonableness” test allows the presumption to be rebutted.
Id. However, The Bremen did not apply the “reasonableness”
analysis in the face of a statute purporting to decide the
question of a choice-of-forum clause’s enforceability. The
Bremen announced a reasonableness test to evaluate choice-of-
forum clauses when Congress has not directly spoken to the
issue. The “unreasonableness” test does uot apply here where
Congress specifically enacted antiwaiver provisions in the
Further support of this conclusion is found in the Supreme
Court’s Carnival decision, specifically in its discussion of the
effect of the Limitation of Vessel Owner’s Liability Act, 46
U.S.C.App. § 183c. The Carnival Court does not apply The
Bremen’s “reasonableness” analysis to determine whether this
statute renders unenforceable a choice-of-forum clause
Hig SRE At LOREEN SER CRG GO i Se TE Br. 4
39a
contained in a contract between a cruise ship and a passenger.
The Court discusses The Bremen analysis separately, concluding
that the forum-selection clause is not unreasonable under The
Bremen factors. When analyzing section 183c, however, the
Court simply rules that the forum-selection clause did not
violate the statute. Carnival, 499 U.S. at 596.
Congress was not ignorant of the potential international
character of securities transactions. 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. We do not believe that we should turn the
clock back to 1929 or introduce caveat emptor as the
rule governing the solicitation in the United States of
investments in securities by residents of the United States. See
Jennifer M. Eck, “Tisrning Back The Clock: A Judicial Return to
Caveat Emptor For U.S. Investors In Foreign Markets”, 19 N.C.J.
Int'l L. & Com. Reg. 313 (1994).
The dissent makes several remarkable rhetorical points:
(1) Our decision means that Americans betting on chicken
fights in Zamboanga could sue for breach of American
securities law. (2) Our decision subjects Lloyd’s “to the varying
requirements of the different countries in which the Names
might reside.” (3) It is “unlikely” that, without the Choice
Clauses, Lloyd’s would engage in underwriting risks at
reasonable premiums. More dispassionate conclusions would be
that Americans can sue over a foreign gaming venture only if its
securities are peddled in the United States; subjecting sales of
Lloyd’s securities to our securities laws says nothing at all as to
the legal fate of Lloyd’s in the rest of the world; and Lloyd’s will
go On writing insurance as long as the business is profitable,
Lloyd’s will merely be more circumspect in raising capital in the
United States. The fundamental issue dividing the majority and
minority does not depend upon rhetorical flourishes but on
40a
whether the courts or Congress determines our national policy
after Congress has spoken.
Even undertaking the analysis that the other circuits
undertook, we cannot agree with their evaluation of the
remedies available. In this not easy task we are aided by the
SEC, which has entered this case on appeal as a friend of the
court. We do not defer to its position as one arrived at by
agency rulemaking (which has not occurred), but we do draw on
the SEC’s expertise when it points to the deficiencies in the
remedies provided the plaintiffs by English law. Three major
deficiencies exist: (1) There is no remedy in England for failure
to register securities as required by Section 12(1) of the 1933
Act. (2) There is no remedy in England against Lloyd’s for
negligent misrepresentation as provided by Section 12(2); the
Lloyd’s Act, 1982, expressly immunizes Lloyd’s from any claim
“for negligence or other tort, breach of duty or otherwise ...
unless the act or omission complained of ... was done or omitted
to be done in bad faith.” (3) In the United States there is
liability for controlling persons under Section 15 of the 1933
Act and Section 20(a) of the 1934 Act; there is no such liability
in England. We need not go further to list the various
procedural and financial requirements noted by the plaintiffs
which would act as hurdles to obtaining relief in England.
Major gaps exist in the English substantive law of securities
fraud. The available English remedies are not adequate
substitutes for the firm shields and finely honed swords
provided by American securities law.
The dissent believes a “plain, speedy and adequate
remedy” exists if the plaintiffs had sued other defendants, some
of whom the dissent acknowledges to be insolvent. Such
hypothetical and derisory possibilities are not alternative
remedies at all so far as concerns the defendants the plaintiffs
did choose to sue. The dissent goes on to disparage suit in a
federal court as a suit in California, a “plaintiff-friendly
environment.” The dissent takes no equivalent glance at the
environment likely to surround American investors seeking
4la
redress in London against Lloyd’s of London, a business
corporation so powerful that it has obtained from the British
legislature substantial immunities. A plain, speedy, and
adequate remedy for the wrongs alleged by the plaintiffs is not
shown to exist in Britain.
The RICO Claims. The plaintiffs’ Tenth Claim for Relief,
for alleged violations of RICO, rests in part on allegations of
“multiple acts of fraud in the sale of securities” in violation of
the 1933 and 1934 Acts and in part on allegations of mail fraud
in violation of 18 U.S.C. §§ 1341 and 1343. The allegations of
securities fraud tie the RICO allegations to the federal
securities claims but the bar on the waiver of rights under the
Securities Acts is not a bar of waiver of rights under RICO, so
our analysis of the Securities Act is not controlling. At the same
time the record is bare as to what remedy an English court
would provide a RICO claim. Consequently, we remand to the
district court to determine in the light of this opinion whether
the Choice Clauses are reasonable in their impact on the
obligations established by RICO.
Forum non conveniens. Lloyd’s asks us to affirm on the basis
of forum non conveniens as a ground apparent on the record
although not a ground adopted by the district court. We decline
to do so. Dismissal for forum non conveniens requires a
balancing of a multitude of factors first properly found and
weighed by the district court. We do note the heavy burden to
be sustained by the defendants in the light of our holding that
Lloyd’s by contract cannot avoid application of the federal
securities statutes.
The Blue Sky Claims. The Blue Sky Law claims are pleaded
perfunctorily and without reference to any particular state law
prohibitions against the Choice Clauses. For the reasons stated
by the several circuit courts that have upheld the Choice
Clauses, we hold that they bind the parties in the absence of any
statutory provision annulling them.
42a
The Common Law Fraud And Breach Of Fiduciary Duty
Claims. These claims, too, must be pursued according to the
Choice Clauses. No statute of the United States is to the
contrary. The English remedies appear adequate.
The Status Of The Unincorporated Association. Fed. R. Civ.
P. 17(b) provides:
The capacity of a corporation to sue or be sued shall
be determined by the law under which it was
organized. In all other cases capacity to sue or be sued
shall be determined by the law of the state in which
the district court is held, except (1) that a partnership
or other unincorporated association, which has no
such capacity by the law of such state, may sue or be
sued in its common name for the purpose of enforcing
for or against it a substantive right existing under the
Constitution or laws of the United States.
See, e.g., Sierra Ass’n v. FERC, 744 F.2d 661, 662 (9th Cir. 1984).
The district court did not rule on the plaintiffs’ motion to
grant a default against the Unincorporated Association, which
did not answer the plaintiffs’ complaint. On remand, the district
court should rule on the motion in the light of Rule 17(b) and in
the light of such facts as the district court finds after a hearing.
ce
CONCLUSION
For the reasons stated, the judgment of the district court is
AFFIRMED in its dismissal of the Blue Sky law, common law
fraud, and breach of fiduciary duty claims. The judgment of the
district court is REVERSED as to its dismissal of the federal
securities and RICO claims and the dismissal of the plaintiffs’
default motion against the Unincorporated Association. The
case is REMANDED to the district court.
43a
GOODWIN, Circuit Judge, Concurring and Dissenting:
I would affirm the judgment dismissing the action
pursuant to Fed. R. Civ. P. 12(b)(3). The Choice Clauses are
valid and are not preempted by extraterritorial application of
the United States securities laws.
Appellants, all citizens or residents of the United States,
claim that Section 14 of the 1933 Act and Section 29a of the
1934 Act, give them the right to repudiate their insuring
agreements. Section 14 reads: 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.
The key question is whether the transactions described in
the complaint made the appellants “persons acquiring any
security.” The majority concludes, without deciding whether
these foreign insurance undertakings are securities, that the
appellants have brought themselves within the protection of a
law designed to protect domestic investors from being
victimized by combinations of their own greed and the artifices
of sellers of investment schemes. The majority holds that just
because the Appellants alleged in their complaint that they
were “persons acquiring any security,” United States securities
law renders void the carefully written terms of the engagements
by which the Appellants brought themselves into the English
insurance underwriting scheme popularly known as “Lloyd’s of
London.”
The same reasoning would bring protections under our
securities laws to any one who loses his or her savings betting on
chicken fights in Zamboanga. An American could simply allege
she had purchased a security, and thus repudiate any
contractual obligations entered into around the world. There
must be some limit to the reach of the United States
government as nanny.
There are a number of prudential reasons, based on the
augmentation of trade, as well as domestic legal reasons, based
44a
upon United States precedent, why the majority’s willingness to
jettison solemn international contracts in order to pursue a
perceived policy goal on the part of Congress must be called
into question.
I accept, as one must for Rule 12(b)(3) purposes when
examining pleadings, the majority’s statement of the facts. But
the facts as pled do not compel the majority’s conclusions of
law.
United States residents, having heard of the profits to be
made and the risks to be run by investing in the worldwide
underwriting pools in the peculiar form of risk insurance
popularly known as Lloyd’s of London, wanted to become
“Names” (hereinafter referred to as Names). They ventured
their assets, as all Names must, and those who lost money sued.
Those who did not lose money apparently have not sued, but
may be waiting in the wings to see how this case comes out and
to sue if they ever do lose money. It is precisely this effect on
the worldwide insurance business, and upon other international
contracts, that makes this case strange, and troubling.
The Appellants did not sue in the courts of the United
Kingdom, which they solemnly agreed to do if they deemed
themselves wronged. Instead, they sought out the courts of this
circuit, and repudiated that part of their agreement with the
defendants which the Appellants found inconvenient to their
litigation strategy.
It appears from their complaint, and reference to English
law, that if Appellants can prove their essential facts, English
law would provide a plain, speedy, and adequate remedy for any
fraud that was practiced upon them, and fraud is what they now
say made their bargain improvident.
The majority virtually ignores the contracts the parties
negotiated and executed, contractual undertakings without
which their opportunity to venture their assets would not have
been open. The majority also ignores the century of historic
success the nation’s insurance lobby has enjoyed in keeping
45a
federal law largely out of the insurance business. It assumes that
because the Appellants claimed they had acquired securities,
the securities laws trumped all other law that might bear upon
the subject at hand.
The implications of this holding on international business
transactions are not likely to lubricate commerce. Therefore, I
would follow the other circuits that have enforced the Names’
obligations to litigate their claims in the English courts. See
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); Riley v.
Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.),
cert. denied, 506 U.S. 1021 (1992); Shell v. R.W. Sturge, Ltd., 55
F.3d 1227 (6th Cir. 1995); Allen v. Lloyd’s of London, 94 F.3d
923 (4th Cir. 1996).
I. International v. Domestic
The Supreme Court indicated in M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 15 (1972) that forum selection clauses
are presumptively valid where the underlying transaction is
fundamentally international in character. This presumption also
holds for actions under the securities acts. See Scherk v. Alberto-
Culver Co., 417 U.S. 506 (1974). The majority seeks to weaken
Scherk by treating the dispute
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