Opposition Brief — Riley v. Kingsley Underwriting Agencies, Ltd.

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& supreme Court, U.S.

No. 92-664 se & OO

ia NUV 12 1892

Supreme Court of the United Sites! «|

OCTOBER TERM, 1992

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RONALD H. RILEY,

Petitioner.

—V—

KINGSLEY UNDERWRITING AGENCIES, LTD., A BRITISH

CORPORATION, LIME STREET UNDERWRITING AGENCIES,

LTD., A BRITISH CORPORATION, BANKSIDE SYNDICATE

LIMITED, A BRITISH CORPORATION, FIRSTBANK OF VAIL,

N.A., ROBIN C. KINGSLEY, ROBERT HALLAM, SOCIETY

AND COUNCIL OF LLOYD'S, AND JOHN DOES I THROUGH X,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

TAYLOR R. BRIGGS

Counsel of Record

SHEILA H. MARSHALL

STEPHEN H. OREL

On the Brief

LEBOEUF, LAMB, LEIBY & MACRAE

125 West 55th Street

New York, New York 10019

(212) 424-8000

DAVIS, GRAHAM & STUBBS

Suite 4700

370 Seventeenth Street

Denver, Colorado 80202

Counsel for Respondents

i

COUNTER QUESTIONS PRESENTED

1. Whether this Court’s unbroken line of precedents favor-

ing enforcement of choice of forum and choice of law clauses

in international agreements warranted dismissal by the courts

below of Petitioner’s federal and state securities law and com-

mon law fraud claims against the Society and Council of

Lloyd's of London and against Petitioner’s Members’ Agents

at Lloyd's of London, arising out of Petitioner’s membership in

that English institution.

2. Whether the United Nations Convention on the Recog-

nition and Enforcement of Arbitral Awards, to which both the

United States and the United Kingdom are parties, and the

emphatic federal policy favoring arbitration, require enforce-

ment of Petitioner’s commitment to arbitrate his disputes with

his English Members’ Agent at Lloyd’s of London.

STATEMENT PURSUANT TO RULE 29.1

Respondents Kingsley Underwriting Agencies, Ltd., a British

corporation, Lime Street Underwriting Agencies, Ltd., a British

corporation, Bankside Syndicate, Ltd., a British corporation,

and the Society and Council of Lloyd’s, have no parent or sub-

Sidiary corporations within the meaning of Rule 29.1 of the

Rules of the Supreme Court of the United States.

il

TABLE OF CONTENTS

PAGE

COUNTER QUESTIONS PRESENTED .......6000cc0000s i

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TABLA OF AERPs 6 ei crseneaeaie en thas ok cs decane iii

COUNTERSTATEMENT OF THE PACTS. ......cccsces0. l

REASONS FOR DENYING THE PETITION............. 2

I. There Is No Conflict Among Courts Of Appeal. 2

II. The Decision Below Followed This Court's

Consistent Holdings That Choice Clauses In

International Agreements Must Be Upheld.... 4

III. The Convention On The Recognition And

Enforcement Of Foreign Arbitral Awards

Requires Enforcement Of The Arbitration

Ciawnee OF Tit CGRIE 5 os ace hoc ceoeeeccwanes 11

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TABLE OF AUTHORITIES

CASES PAGE

Bonny v. Society of Lloyd’s, 784 F. Supp. 1350 (N.D. Ill.

1992), No. 91 C 5525, slip op. (N.D. Ill. May 29,

Carnival Cruise Lines, Inc. v. Shute, ___ U.S. ___, 111

ECR ED ci cnsccwessusnvasnacnscccaseseses 4,7

David L. Threlkeld & Co. v. Metallgesellschaft Ltd.

(London), 923 F.2d 245 (2d Cir.), cert. dismissed,

U.S. 115 L. Ed. 2d 104 (1991)........... 12

Dean Witter Reynolds, Inc. v. Alford, ___ | See ty

Me DC OUPED . onc cc bis ccna cdescccesscccrsensecece 14

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) .8,9

Development Bank of Philippines v. Chemtex Fibres, Inc.,

617 F. Supp. 55 (S.D.N.Y. 1985)......--. +e eee sees: 7

Filanto, S.p.A. v. Chilewich Int’! Corp., 789 F. Supp. 1229

CSD. Y. 1992)... 2... cc ccccceccsceccccccsecesccccees 13

Gates Energy Prods. v. Uyasa Battery Co., 599 F. Supp.

368 (D. Colo. 1971)........ ccc eee e eee eee eee eeeeees 12

Gilmer v. Interstate/Johnson Lane Corp., ___ sk ae

111. S. Ct. 1647 (1991) .... ccc cn ne cece cence eee ceccees 14

Hirsch v. Oakeley Vaughan Underwriting, Ltd. and the

Society, Council, and Corporation of Lloyd's, No.

89-2563, unpublished slip op. (Sth Cir. May 31, 1989),-

cert. denied, _ U.S. __, 111 S. Ct. 511 (1990)....... 3

Howe v. Goldcorp Invs., Ltd., 946 F.2d 944 (lst Cir.

1991), cert. denied, __ U.S. __, 112 S$. Cr. 11°72

PUD ca ccccbsncccacnncecccersesenscecesnsenessceses 3, 10

LSE EAP hs eee A A

iV

PAGE

Interamerican Trade Corp. v. Companhia Fabricadora de

Feces, S73 F.26 4S7 CG CH. UG9Z) snc cascsvccsess 13

Ledee v. Ceramiche Ragno, 684 F.2d 184 (1st Cir. 1982). 12

M/S The Bremen v. Zapata Off-Shore Co., 407 U.S. 1

Ce hs GEGUVMEKY bik Kos CET RELESA NETS ree eboueun saa 4,5

McCreary Tire & Rubber Co. v. CEAT S.p.A., 501 F.2d

Pe OE svt hn concn cdcesek sb unesapansenes 12

McDermott Int'l, Inc. v. Underwriters at Lloyd's, 947 F.2d

Sa ee Ee BOE Wick cNEe ceo ek andk has vevaeexees ns 13

Ministry of Defense of the Islamic Republic v. Gould, Inc.,

fof 8. Le ae, : | et eee 13

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

Ew Se ee CE iin Modaw ei ochre veduaiss acasoeks passim

Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972

Fue Be CO Tat BED nc Konbw ad bunsnendedenccuacees 13

Roby v. Corporation of Lloyd’s, {1992 Transfer Binder]

Fed. Sec. L. Rep. (CCH) ¢ 96,971 (S.D.N.Y. Aug. 18,

| Ae Re A ey EN SP REOELZ LER a eA ge REESE 2,3,4,9

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

Ue Gai Tee COE cud akk oa beh cnd dakhedeshiuecienwes 14

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)...4, 6, 14

Shearson/American Express, Inc. v. McMahon, 482 U.S.

IT Bit UASCMAAN io k4 iS 0S 4b nA aRRNS AA SSA SOOsAe 14

Siderman de Blake v. Republic of Argentina, 965 F.2d

ey EE UES vat cunen caeckCe Kha nenehossa reas 12-13

Wee WU, PO Wet SEF CDSS) os vs ie accacadivecseseas 14

PAGE

STATUTES

Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.

(West 1981 & Supp. 1992) ......... cece cece eee ee seen 6

35 U.S.C. § 294 (West 1984). .... cece cece sevens ecesenns 14

OTHER AUTHORITIES

Aksen, American Arbitration Accession Arrives in the

Age of Aquarius: United States Implements United

Nations Convention on the Recognition and Enforce-

ment of Foreign Arbitral Awards, 3 Sw. U.L. Rev. 1

Kerr, /nternational Arbitration v. Litigation, 1980 J. Bus.

we Te) | eee erent rr rere rrr rrr 12

Martinez, Recognition and Enforcement of International

Arbitral Awards Under the United Nations Conven-

tion of 1958: The “Refusal Provisions”, 24 Int'l

Rarer, GBT CERIO. occ o's ne cn Gorecccecacccassesauavonsss 13

McLaughlin & Genevro, Enforcement of Arbitral Awards

Under the New York Convention—Practice in US.

Courts, 3 Int’1 Tax & Bus. Law. 249 (1986) ......... 8

Richard, Enforcement of Foreign Arbitral Awards Under

the United States Convention of 1958: A Survey of

Recent Federal Case Law, 11 Md. J. Intl L. &

Trade 13 (1987)..... Doe see Se ee ee eee ae 13

COUNTERSTATEMENT OF THE FACTS

Respondent incorporates by reference the statement of facts

in the opinion below (A-3-7).' The record also demonstrates

the international character of Mr. Riley’s becoming an under-

writer at Lloyd’s: he first met his Members’ Agent in London;

subsequently travelled to London for a formal interview with

a member of the Lloyd’s Council, or governing body, who

inquired whether he understood that as a member he would be

liable to the full extent of his net worth to pay claims on the

insurance policies which his syndicates would underwrite.”

The alleged misrepresentations that led Petitioner to join

Lloyd’s in 1980 occurred between 1978 and 1980 (Complaint

q{ 39-57; Transcript of District Court proceedings, Aug. 20,

1991, at 11, 16 (pages 36 and 41 of Mr. Riley’s Appendix filed

with the Tenth Circuit)). His alleged “investment” in the unique

market at Lloyd’s was the purchase of a letter of credit, which

varied in amounts from £150,000 to £350,000 over his eleven

years of membership.

Petitioner errs in suggesting that the decision below deprives

him of a right available to him under U.S. securities laws.

When the Securities and Exchange Commission (the “SEC”) in

1987 and 1988 reviewed the whole issue of offering member-

ship in Lloyd’s to United States persons, it concluded that if the

Members’ Agents solicited participation in Lloyd’s in com-

pliance with the procedures of the Commission’s Regulation D,

registration under the Securities Act was not required. To the

SEC the security was the U.S. person’s relationship with his

l Denotes reference to Appendix A to the Petition for Certiorari.

2 Before joining Lloyd’s in 1979 he was given “An Introduction to

Lloyd’s Underwriting Membership” which stated, among other things,

that:

It must be stressed that Underwriting is a risk business and an Under-

writing Member of Lloyd's has unlimited liability with regard to the

share or risks accepted by each Syndicate in which he or she partic-

ipates.

See Ex. 1 to the Supplemental Appendix, submitted by respondents to

the Tenth Circuit.

Members’ Agent, with the issuer being the particular Members’

Agent involved. The SEC’s position was reaffirmed in 1991.

See letter of Aug. 5, 1991 from the Senior Associate Director

of the SEC, which the respondents herein submitted to the

Tenth Circuit as Ex. D to their brief in opposition to Mr.

Riley’s motion for injunction pending appeal, and ledentan is

attached hereto as pages RA-1-4.?

REASONS FOR DENYING THE PETITION

: Be

There Is No Conflict Among Courts Of Appeal.

Federal District Courts sitting in Chicago and in New York

have both recently decided cases brought by other U.S. mem-

bers of Lloyd’s in favor of Lloyd’s and their Members’ and

Managing Agents on facts virtually identical to those in this

case. Bonny v. Society of Lloyd’s, 784 F. Supp. 1350 (N.D. Ill.

1992) (denying request for preliminary injunction), No. 91

C 5525, slip op. (N.D. Ill. May 29, 1992) (dismissing case) (the

May 29 Order is attached hereto as Appendix B); Roby v. Cor-

poration of Lloyd’s, {1992 Transfer Binder] Fed. Sec. L. Rep.

(CCH) ¥ 96,971 (S.D.N.Y. Aug. 18, 1992). Consistent with this

Court’s teaching, each of those courts has dismissed the com-

plaints before them, finding that the pre-dispute international

agreements containing choice of forum and choice of law

clauses (“Choice Clauses”’) as to Lloyd’s, and the Arbitration

Clause as to the Agents, were valid and enforceable. Those

decisions are now on appeal to the Seventh and Second Cir-

Cuits, respectively. The Seventh Circuit will hear oral argument

in Bonny in December 1992; the Second Circuit will hear oral

argument in Roby in January, 1993. The only disharmony with

these decisions, and with this Court’s precedents, is a single

recommended decision of a Federal District Court magistrate

judge in Houston, which antedated the complete analyses in

Roby, Bonny, and the Tenth Circuit below. The Texas magis-

3 “RA- " denotes references to Respondents’ Appendix.

3

trate judge recommended that a similar complaint not be dis-

missed (see Exhibit C to Petition); a district court judge has

accepted that recommendation (see Exhibit D to Petition) but

rehearing of that order has been sought and no decision on

rehearing has yet been rendered. That district court decision

conflicts with a contrary decision by its circuit court, which

dismissed a similar Name’s action against Lloyd’s, prior to the

time when Choice Clauses were included in membership con-

tracts, on grounds of forum non conveniens.* See Hirsch v.

Oakeley Vaughan Underwriting, Ltd. and the Society, Council,

and Corporation of Lloyd's, No. 89-2563, unpublished slip

opinion’ (Sth Cir. May 31, 1989), cert. Pe a | 2.

111 S. Ct. 511 (1990).

Less than two years ago, this Court denied a petition for cer-

tiorari in the Hirsch case, cited above, on essentially the same

alleged fact pattern as in the instant Case. Id.

In a closely analogous ruling, the Circuit Court of Appeals

for the First Circuit has recently affirmed that ordinary forum

non conveniens considerations which would warrant dismissal

in favor of the courts of a foreign country apply equally to

actions brought under the United States securities laws, Howe

v. Goldcorp Invs., Ltd., 946 F.2d 944 (Ist Cir. 1991), cert.

denied, __ U.S. __, 112 S. Ct. 1172 (1992). A fortiori, inter-

national contractual agreements to achieve the same result

should be honored.

4 Accord: Roby, Fed. Sec. L. Rep. at p. 94,171; “The overwhelmingly

English nature of this dispute likely also would warrant dismissal of the

action on forum non conveniens grounds.”

5 To the Fifth Circuit, Hirsch raised no important new issue but was

- “merely decide[d] . . . on the basis of well-settled principles of

law. . . ." Hirsch, slip op. at 1 n.1. See the Appendix to the Petition for

Certiorari in Hirsch, No. 90-519.

The Decision Below Followed This Court’s Consistent

Holdings That Choice Clauses In International

Agreements Must Be Upheld.

The court below, as have the courts in Roby and Bonny,

merely applied the clearly articulated jurisprudence of this

Court to the unique facts presented by contractual participation

by foreign underwriters in the Lloyd’s insurance market.°®

Petitioner conceded below that “The enforcement of forum

and choice of law clauses is consistent with recent U.S.

Supreme Court decisions.” A-8. When petitioner elected to

»ecome an insurance underwriter, he and Lloyd’s agreed with

one another that their respective rights and obligations would

be “governed by and construed in accordance with the laws of

England,” and that any dispute would be settled in “the courts

of England.””’ Petition at 9-10. These Choice Clauses were an

integral part of a bargain which petitioner enjoyed for a num-

ber of years, and now secks to repudiate. Attempts to evade

such clauses have been thoroughly considered and solidly

rebuffed by this Court in M/S The Bremen v. Zapata Off-Shore

Co., 407 U.S. 1 (1972), in Scherk v. Alberto-Culver Co., 417

U.S. 506 (1974), in Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) and, just months ago, in

Carnival Cruise Lines, Inc. v. Shute, ss U.S. —___,, 111 S.Ct.

1522 (1991).

In The Bremen, a contract for towing a drilling rig from

Louisiana to Italy provided for judicial resolution of disputes

in an English forum. In transit, the rig suffered storm damage

and was towed to Tampa, Florida. In Florida the owner, like

6 The singular and complicated structure of Lloyd's and the complex of

agreements which defined petitioner's relationship at Lloyd's are set

forth in Roby at p. 94,164-66.

7 “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 [Riley's] membership

of, and/or underwriting of insurance business at, Lloyd's.” A-4.

petitioner herein, “ignoring its contract promise to litigate “any

dispute arising’ in the English courts,” 407 U.S. at 3, filed suit

in the United States district court. The district court denied a

motion to dismiss, and the Court of Appeals affirmed, holding

the forum-selection clause unenforceable on public policy

grounds because the plaintiffs’ claims would be subject to

exculpatory clauses in England, but not in the United States

where they were against public policy. This Court reversed.

Pointing out the “expansion of overseas commercial activities

by business enterprises based in the United States,” 407 U.S.

at 9, it observed.

The expansion of American business and industry will

hardly be encouraged if, notwithstanding solemn con-

tracts, we insist on a parochial concept that all disputes

must be resolved under our laws and in our courts.

Chief Justice Burger explained the reasons guiding the

Court's ruling as follows: first, as here, a number of jurisdic-

tions could otherwise be the situs of suit, and the parties jus-

tifiably wished to avoid the uncertainty and inconvenience

which could come to pass as a result. 407 U.S. at 13. Secondly,

the choice-of-forum clause was a “vital part of the contract”

(as the Choice Clauses certainly were here, embracing two of

the three substantive paragraphs in the General Undertaking,

see A-4-5) and the Court quoted with approval the statement of

the English High Court of Justice that:

[T]he force of an agreement for litigation in this country,

freely entered into between two competent parties, seems

to me to be very powerful.

407 U.S. at 14. Finally, this Court concluded with a strong

endorsement of the forum-selection clause:

Thus, 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.

407 U.S. at 15.

In Scherk, a contract covering the sale of several German

businesses and associated trademarks provided for arbitration

in France as the forum with Illinois law as the applicable law.

Like Petitioner, the American company sought to repudiate its

contract, and filed suit in Illinois claiming violations of the

Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. The

district court and the court of appeals held the choice clauses,

in particular the arbitration clause, to be unenforceable. This

Court again reversed, as it had in The Bremen. Speaking

through Mr. Justice Stewart, this Court discussed its rationale

for honoring choice clauses in international transactions. It

emphasized the advantages to those engaged in international

commerce in eliminating uncertainties in the applicable law,

Stating:

Such uncertainty will almost inevitably exist with respect

to any contract touching two or more countries, each with

its Own substantive laws and conflict-of-laws rules. A

contractual provision specifying in advance the forum in

which disputes shall be litigated and the law to be applied

is, therefore, an almost indispensable precondition to

achievement of the orderliness and predictability essential

to any international business transaction.

417 U.S. at 516.

This Court rejected the post-contract forum shopping so

vividly illustrated by the instant case:

A parochial refusal by the courts of one country to enforce

an international arbitration agreement would not only

frustrate these purposes, but would invite unseemly and

mutually destructive jockeying by the parties to secure

tactical litigation advantages.

417 U.S. at 516-7. It reaffirmed the rationale and reasoning of

The Bremen, 417 U.S. at 518.

This Court next decided Mitsubishi, a case that Judge Car-

rigan in the district court below saw as “squarely contrary” to

petitioner’s position. Transcript of district court proceedings,

Aug. 30, 1991, at 9 (page 186 of Mr. Riley's Tenth Circuit

Appendix). Mitsubishi held that an agreement requiring arbi-

tration in Japan is valid and enforceable and extends to statu-

tory claims under the U.S. antitrust laws. In its analysis, this

Court repeated, once more and in detail, the principles appli-

cable to commercial transactions in international commerce,

emphasizing the need for certainty and predictability in inter-

national dealings:

[W]e conclude that concerns of international comity,

respect for the capacities of foreign and transnational tri-

bunals, and sensitivity to the need of the international

commercial system for predictability in the resolution of

disputes require that we enforce the parties’ agreement,

even assuming that a contrary result would be forthcom-

ing in a domestic context.

Notwithstanding the possibility that the English court

would enforce provisions in the towage contract excul-

pating the German party which an American court would

refuse to enforce, this Court [in The Bremen] gave effect

to the choice-of-forum clause.

473 U.S. at 629. The Court condemned reliance upon purely

domestic policies as a ground for striking down a choice clause

and summarized the law in these terms:

The Bremen and Scherk establish a strong presumption in

favor of enforcement of freely negotiated contraciual

choice-of-forum provisions. Here, as in Scherk, that pre-

sumption is reinforced by the emphatic federal policy in

favor of arbitral dispute resolution. And at least since this

Nation’s accession in 1970 to the Convention, see [1970]

21 U-S.T. 2517, T.1L.A.S. 6997, and the implementation of

the Convention in the same year by amendment of the

Federal Arbitration Act, that federal policy applies with

special force in the field of international commerce.

473 U-S. at 631. Accord, Carnival Cruise Lines, supra, Dev-

elopment Bank of Philippines v. Chemtex Fibres, Inc.,

617 F. Supp. 55, 57 n.12 (S.D.N.Y. 1985) (concluding from

Mitsubishi that “it is clear that the Convention does not con-

template the expression of local public policy as a barrier to the

arbitrability of claims”); McLaughlin & Genevro, Enforcement

of Arbitral Awards Under the New York Convention—Practice

in U.S. Courts, 3 Int’! Tax & Bus. Law. 249, 260 n.69 (1986).

Under the principles articulated by this Court in Mitsubishi,

the public policy doctrines launched by petitioner are ripe for

application, if ever, only at the enforcement stage of arbitral or

litigation proceedings. Footnote 19 disposed of the very argu-

ment which petitioner now makes in this Court, (based on his

extrapolation of footnote 21 in the same opinion), namely that

the court should refuse to enforce his Choice Clauses because

holding them valid would result in a waiver of remedies under

American law. Footnote 19 explained that an amicus brief had

raised the issue that, because the agreement provided that the

laws of Switzerland would govern, Swiss law rather than

American antitrust law would be the law of decision. Noting

that the arbitration panel had taken the antitrust claims under

submission, the Court disposed of this argument by saying:

We therefore have no occasion to speculate on this matter

at this stage in the proceedings, when Mitsubishi seeks to

enforce the agreement to arbitrate, not to enforce an

award. Nor need we consider now the effect of an arbitral

tribunal's failure to take cognizance of the statutory cause

of action on the claimant’s capacity to reinitiate suit in

federal court.

473 U.S. at 637 n.19.

A similar result was reached in the context of a federal secu-

rities act case in Dean Witter Reynolds Inc. v. Byrd, 470 U.S.

213 (1985). In Byrd, this Court declined to override an arbi-

tration clause based on the possible future preclusive effects on

federal claims of a state arbitration proceeding, on the grounds

that:

The question of what preclusive effect, if any, the arbi-

tration proceedings might have is not yet before us, how-

ever, and we do not decide it. The collateral-estoppel

9

effect of an arbitration proceeding is at issue only after

arbitration is completed, of course, and we therefore have

no need to consider now whether the analysis in McDon-

ald encompasses this case. Suffice it to say that in fram-

ing preclusion rules in this context, courts shall take into

account the federal interests warranting protection. As a

result, there is no reason to require that district courts

decline to compel arbitration, or manipulate the ordering

of the resulting bifurcated proceedings, simply to avoid an

infringement of federal interests.

470 U.S. at 223 (emphasis added).

This principle applies to this case. Even though it is impos-

sible to predict whether arbitration or litigation, in England

under English laws, would ultimately infringe to an unac-

ceptable degree upon Riley's claimed federal rights, the Roby

court noted how unlikely was that prospect, Roby supra at

p. 94,171:

Although English law does not afford the treble damage

provisions of RICO or the less rigorous elements of proof

of the American securities laws, it does at a minimum

offer a full panoply of common law remedies for the

alleged behavior underlying all plaintiffs’ claims. These

remedies include equitable claims for rescission of fraud-

ulently induced agreements and damages claims for

negligent or fraudulent misrepresentation, or “deceit.”

Plaintiffs have conceded that these remedies are available

as to the Managing and Members’ Agents, who more

directly interacted with plaintiffs than did other defen-

dants, and, upon a stronger showing of scienter, as to

Lloyd’s. In addition, English securities regulations may be

enforced against Lloyd’s upon application by the gov-

ernment on behalf of a defrauded or misled purchaser of

securities. Such remedies afford plaintiffs protection

under the law; the English law which they earlier accepted

merely is less advantageous than the American law that

they now prefer. Under the circumstances, plaintiffs are

not entitled to more.

10

The Tenth Circuit, whose review is sought here agreed:

“Riley will not be deprived of his day incourt. He may,

though, have to structure his case differently than if pro-

ceeding in federal district court.” A-11.

In dismissing securities claims brought by an American

investor in favor of a Canadian forum, despite plaintiff's objec-

tions that such a dismissal was not proper unless it was first

clear that the Canadian courts would apply U.S. securities laws,

the Court of Appeals for the First Circuit stated:

Trial in Canada will not deprive the plaintiff of relevant

legal advantages. Canadian courts will either apply Amer-

ican law . . . ; or they will apply Canadian laws that

offer shareholders somewhat similar protections by for-

bidding misrepresentation and fraud and imposing fidu-

Ciary obligations.

Howe v. Goldcorp Invs., Ltd., 946 F.2d 944, 952 (Ist Cir.

1991), cert. denied, U.S. » 112 S. Ct. 1172 (1992)

(citations omitted).

In the final analysis, Mitsubishi establishes two important

and far reaching principles, which stand as beacons for the

decision in the instant case. First, those who choose to engage

in business on an international scale should expect that United

States courts will enforce their contracts designating a partic-

ular forum for the resolution of disputes. Second, any attack

which they believe they can make in our courts will! be con-

sidered, if at all, only at the award enforcement stage, not when

their choice clauses alone are at issue. On their face, the Choice

Clauses in petitioner's agreements, utilized by underwriters

from more than fifty countries, show that they were not based

on any ulterior motive to evade any United States laws. They

are of the type described by this Court as “indispensable” in

foreign commerce, and as such, are favored with strong pre-

sumptions of enforceability, and applied “with special force in

the field of international commerce.” Mitsubishi, 473 U.S. at

631. Far from constituting a sub rosa “waiver,” they support

important public policy through a suite of beneficial effects,

KK ©

including furtherance of international commerce, prompt and

efficient resolution of disputes, predictability in choice of law,

and recognition of private agreements freely entered into

among the world’s citizens. In denying the petition, this Court

would be following its own strong line of precedents.

The Convention On The Recognition And Enforcement

Of Foreign Arbitral Awards Requires Enforcement Of

The Arbitration Clause Of The Contract.

Decisions at every level of U.S. courts Support the decisions

below requiring enforcement of petitioner’s agreements to arbi-

trate. This Court, in Mitsubishi, specifically considered whether

enforcement of arbitration under the Convention was selective,

that is, whether enforcement would be ordered with respect to

some subjects but not to others, and squarely rejected peti-

lioner’s theory (see Petition at 18) that the non-waiver sections

of the securities laws should, notwithstanding the Convention,

be construed to release him from compliance with his contract

to arbitrate. Again pointing to the need for mutual acceptance

in the family of nations, 473 U.S. at 638, this Court concluded

that it should not read exceptions into the Convention.

Congress had intended the Convention to be all-inclusive:

[I]n implementing the Convention by amendment to the

Federal Arbitration Act, Congress did not specify any

matters it intended to exclude from its scope.

* * *

{Wie decline to subvert the spirit of the United States’

accession to the Convention by recognizing subject-mat-

ler exceptions where Congress has not expressly directed

the courts to do so.

473 US. at 639 n.21.

Under the leadership of this Court, court after court has

enforced arbitration agreements under the Convention, fol-

lowing this Court’s lead in the Scherk securities case. David L.

Threlkeld & Co. v. Metallgesellschaft Ltd. (London), 923 F.2d

245, 248 (2d Cir.), cert. dismissed, U.S. , 115 L. Ed.

2d 104 (1991) (Convention “makes it clear that the liberal fed-

eral arbitration policy ‘applies with special force in the field of

international commerce’ ”’);* Ledee v. Ceramiche Ragno, 684

F.2d 184, 186-87 (1st Cir. 1982) (when a district court finds,

after “a very limited inquiry” that the requirements of the Con-

vention are fulfilled, “then it must order arbitration unless it

finds the agreement ‘null and void, inoperative or incapable of

being performed’ ”) (emphasis in original); McCreary Tire &

Rubber Co. v. CEAT S.p.A., 501 F.2d 1032, 1037 (3d Cir. 1974)

(“There is nothing discretionary about article II(3) of the Con-

vention. It states that district courts shall at the request of a

party to an arbitration agreement refer the parties to arbitra-

tion”) (emphasis in original); Gates Energy Prods. v. Uyasa

Battery Co., 599 F. Supp. 368, 371 (D. Colo. 1971) (directing

arbitration in Japan under the Convention).

Since the beginning of this calendar year a number of cases

involving the enforceability of arbitration clauses under

the Convention have been decided and, consistently with the

Lloyd’s decisions, every one has compelled the arbitration of

claims. See Siderman de Blake v. Republic of Argentina, 965

8 London stands at the very top of the list as a locale for resolution of

international disputes through arbitration:

Due to its historic position in international trade and the repute of its

legal system, [England] has for long been a world centre for the set-

tlement of international commercial disputes. Our arbitration law was

fully developed by the middle of the last century, and owing to the

world-wide use of English standard forms of contract in many fields,

most of which provide for arbitration here, it is probably still the most

important single arbitration centre in the world, in the same way as

the Commercial Court is almost certainly the most widely used sin-

gle court for international commercial litigation.

Kerr, /nternational Arbiiration v. Litigation, 1980 J. Bus. Law 164, 178

(1980).

13

F.2d 699 (9th Cir. 1992): Ministry of Defense of the Islamic

Republic v. Gould, Inc., 969 F.2d 764 (9th Cir. 1992); McDer-

mott Int'l, Inc. v. Underwriters at Lloyd's, 947 F.2d 1489 (E.D.

La. 1992); Interamerican Trade Corp. v. Companhia Fabri-

cadora de Pecas, 973 F.2d 487 (6th Cir. 1992); Paper Express,

Lid. v. Pfankuch Maschinen GmbH, 972 F.2d 753 (7th Cir.

1992); Filanto, S.p.A. v. Chilewich Int’1 Corp., 789 F. Supp.

1229 (S.D.N.Y. 1992).

Underlying this Court’s decisions is the recognition that, in

order for the Convention to be effective, the courts of many

lands must work in concert to enforce it at every step of the

way. Each nation must surrender its individual particularized

interests in order that its citizens may be the beneficiaries of

the advantages of international arbitration as a facilitator of

commerce. In the early days of the Convention, concerns were

expressed that the “public policy” exception in Article V(2)(b)

would, given its vagueness and the multiplicity of interests

which could fall into its ambit, become a loophole which would

prevent the Convention from being effective. Aksen, American

Arbitration Accession Arrives in the Age of Aquarius: United

States Implements United Nations Convention on the Recog-

nition and Enforcement of Foreign Arbitral Awards, 3 Sw. U.L.

Rev. 1, 13 (1971). However, after more than thirty years of

experience internationally, and more than twenty years of

United States’ commitment, these fears have not been realized.

The courts of the signatory nations, including the United

States, have honored the need for reciprocity among nations,

and have been vigilant in guarding against creating exceptions

to enforcement which would overwhelm the philosophy of

mutual enforcement so necessary to make the Convention a liv-

ing commercial force. Martinez, Recognition and Enforcement

of International Arbitral Awards Under the United Nations

Convention of 1958: The “Refusal Provisions” , 24 Int’] Law.

487, 5908-09, 516 (1990); Richard, Enforcement of Foreign

Arbitral Awards Under the United States Convention of 1958:

A Survey of Recent Federal Case Law, 11 Md. J. Int’] L. &

Trade 13, 15, 42-44 (1987).

14

Accordingly, this Court should deny petitioner’s request

(Petition at 13-17) to review whether Shearson/American

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

de Ouijas v. Shearson/American Express, Inc., 490 U.S. 477

(1989), should be read to preclude arbitration where arbitration

might deny “substantive” rights.

The McMahon court brought both RICO and Rule 10(b)-5

claims within the arbitration clause between the parties, rely-

ing on the strong policies favoring arbitration articulated in

Scherk and other cases, and holding that the arbitration forum

was adequate to protect substantive rights. The court specifi-

cally rejected the argument that enforcement would effect a

waiver of rights under section 29(a) of the Securities Exchange

Act of 1934.

In Rodriguez, two years later, this Court drove the final nail

in the coffin of the argument that arbitration was unsuitable for

the resolution of securities claims in general, and claims under

the Securities Act of 1933 in particular. Overruling any remain-

ing part of Wilko v. Swan, 346 U.S. 427 (1953), and drawing

upon its recent long line of decisions giving ever-increasing

viability to the arbitral process, the Court refused to strike

down arbitration on the theory of voidness under section 14 of

the Securities Act of 1933.?

Moreover, upholding domestic arbitration as they did, neither

decision put upon the scales the even stronger policies favor-

ing arbitration in the international field. See Scherk, 417 U.S.

at 515, where this Court held that an international contract

“involves considerations and policies significantly different

from those controlling in [the domestic arbitration case of]

9 After Rodriguez, this Court has continued to eliminate barriers to

domestic arbitration in Gilmer v. Interstate/Johnson Lane Corp., ___

U.S. ___, 111 St. Ct. 1647 (1991) and Dean Witter Reynolds, Inc. v.

Alford, ___ U.S. ___, 111 S. Ct. 2050 (1991), which held for the first

time that claims for age discrimination and sex discrimination, respec-

tively, are arbitrable. Congress continued to eliminate such barriers by

the enactment of 35 U.S.C. § 294, providing for the submission of patent

claims to arbitration.

15

Wilko.” Nor did this Court consider the Congressional intent to

further arbitration as manifested in the Convention or the 1970

amendment to the Federal Arbitration Act—which made no

exception for securities claims even though Congress was obvi-

Ously aware of them and their importance relative to other

claims which would become Subject to arbitration in foreign

lands. When these factors are added to the McMahon and

Rodriguez endorsement of domestic arbitration as a forum for

resolving securities act claims, it becomes apparent that the

international agreement in this case should be enforced. See

Mitsubishi, holding that international arbitration agreements

would be enforceable “even assuming that a contrary result

would be forthcoming in a domestic context.” 473 U.S. at 629.

The petitioner herein asks this Court to overturn not only its

Own strong precedents, but every tenet of modem jurisprudence

considering the Convention; to demonstrate the unwillingness

of the United States to act in furtherance of a global necessity

and then to invite the courts of all other nations to do the same.

Petitioner would deprive the business interests of this country

of the many advantages of a smooth-working and reciprocal

mechanism of international dispute resolution which the

Congress intended to create when the Convention was imple-

mented. He asks this Court to return to costly, virtually

unworkable, and oft-criticized litigation as the only means of

vindicating rights in international trade.

16

CONCLUSION

The petition for certiorari should be denied.

Respectfully submitted,

TAYLOR R. BRIGGS

Counsel of Record

SHEILA H. MARSHALL

STEPHEN H. OREL

On The Brief

LEBOEUF, LAMB, LEIBY & MACRAE

125 West 5Sth Street

New York, New York 10019

(212) 424-8000

DAVIS, GRAHAM & STUBBS

Suite 4700

370 Seventeenth Street

Denver, Colorado 80202

Counsel for Respondents

APPENDIX A

RA-1

UNITED STATES

[Seal] SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

OFFICE OF THE

EXECUTIVE DIRECTOR

Stop 2-6 October 11, 1991

Taylor R. Briggs, Esq.

LeBoeuf, Lamb, Leiby & MacRae

520 Madison Avenue

New York, New York 10022

Re: FOIA #91-1351

Dear Mr. Briggs:

This is in response to your letter dated October 3, 1991, and

received in this Office on October 4, 1991, in which you

request access to a letter from Ms. Mary E.T. Beach to Don J.

Pease concerning Lloyd's of London’s solicitation of American

citizens to become participants in Lloyds, pursuant to the

Freedom of Information Act (“FOIA”), 5 U.S.C. 552

We have identified the responsive letter and made a determi-

nation to grant access. A copy of the letter is enclosed

If you have any questions, please contact Arleta D.

Cunningham of my staff at (202) 272-3651

Sincerely,

[Hannah R. Hall]

Hannah R. Hall

FOIA/Privacy Act Branch Chief

Enclosure

RA-2

UNITED STATES

[Seal] oe CURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

DIVISION OF August 5, 1991

CORPORATION FINANCE

CHAIRMAN’S OFFICE

MAILED

The Honorable Don J. Pease AUG 5 1991

United States House of

Representatives

2410 Rayburn Building Signed by:

Washington, D.C. 20515

Re: Lloyd’s of London

Dear Congressman Pease:

I have been asked to respond to your letter of June 20, 1991

in which you ask certain questions pertaining to a letter you

received from one of your constitents, Mr. John Steiner Roby.

Mr. Roby’s letter concerns the solicitation of American citizens

to become participants in Lloyd’s of London (“Lloyd’s”) by

becoming Names, and the subsequent losses of those who

become Names.

Before we address your specific questions perhaps it would

be helpful if we briefly described the unique structure of

Lloyd’s, as it is not an insurance company in the manner of a

typical U.S. insurance company. There are three basic com-

ponents of Lloyd’s. First is Lloyd’s itself (“Lloyd’s’’) which is

not a company but rather an insurance marketplace at which

individuals conduct separate insurance underwriting busi-

nesses. The second component is the Corporation of Lloyd’s,

whose sole function is to provide the premises, administrative

staff and support services. The third component is the Council

of Lloyd’s (the “Council”) which is the body charged with reg-

ulating the entire Lloyd’s structure. The individuals who com-

prise Lloyd’s, called “Members” or “Names”, conduct their

underwriting business exclusively through “Members’ Agents”.

All Members must be elected to their memberships by the

Council and must be sponsored by two other members. All of

a Member’s underwriting business at Lloyd's is conducted pur-

Suant to a standard Agency Agreement with the Members’

Agent. The Agency Agreement grants the Members’ Agent

continuing authority to conduct the Members’ underwriting

business, including accepting risks and effecting reinsurance,

collecting all premiums due the Member, and paying all lia-

bilities and other obligations of a Member. In essence, a

Member delegates complete control of his affairs to the

Members’ Agent and the Member may take no part in the day-

to-day business. The Members’ Agent exercises virtually com-

plete control over a Members’ Syndicate participation. Finally,

the active insurance underwriters at the end of the chain are

principals or employees of “Managing Agents”, which are U.K.

Corporations or partnerships approved by the Council to accept

insurance risks at Lloyd’s. Managing Agents are either also

Members’ Agents or are the agents of such Members’ Agents.

Your first question is whether there is any regulation of

Lloyd’s solicitation of participations in the United States. The

staff of the Commission’s Division of Corporation Finance has

had discussions on two occasions with Lioyd’s concerning the

applicability of the Securities Act of 1933 (the “Securities

Act”) and the Securities Exchange Act of 1934 (the “Exchange

Act”) to the solicitation of U.S. Citizens to Participate in

Lloyd's. It is the Division’s position that the solicitation of par-

ticipations involves the sale of a security, with the issuer of that

Security being the particular Members’ Agent involved.

Accordingly, such U.S. sales would be Subject to all of the pro-

visions of the Securities Act and the Exchange Act, including

the anti-fraud provisions. At the time of those prior discus-

sions, it was determined that if the Members’ Agents solicited

participations in accordance with the procedures proposed by

Lloyd's counsel (an offering structure intended to comply with

the Commission’s Regulation D), registration under the

Securities Act would not be required. However, in light of the

issues raised by Mr. Roby and others, the staff may consider

RA-4

whether the actions of Members’ Agents were consistent with

the earlier representations of counsel and whether further

action is appropriate.

Your second question is whether the participations in Lloyd’s

are analogous to partnerships and what regulations apply to

those types of investments. While Lloyd’s participations do

more closely resemble general partnership interests than they

do other securities, such as shares of common stock, they are

quite unique investments. For example, they may only be held

by individuals, they are not transferable, even under the laws

of descent and distribution, and the liability thereunder is

unlimited although no Name is liable for the “share” of other

Names. There is no existing precedent as to whether Lloyd’s

participations are securities but, as was pointed out above, the

Division of Corporation Finance believes they are securities

and as such are subject to the provisions of the Federal secu-

rities laws in the same manner and to the same extent as more

conventional securities.

Finally, you ask whether U.S. participants in Lloyd’s prop-

erly can obtain venue in litigation against Lloyd’s in the United

States. Your constituent asserted that litigation against Lloyd’s

in the United States has been terminated as not being properly

venued. We are not aware of the litigation to which your con-

Stituent refers, although it may involve a cause of action out-

side the Federal securities laws. However, subject to certain

limitations and conditions, the provisions of the Federal secu-

rities laws generally are as applicable to the sales of foreign

securities (including participations in Lloyd’s) in the United

States as they are to the sales of domestic securities.

I hope that the above material will be helpful in responding

to your constituent’s concerns. If you have any further ques-

tions, please do not hesitate to contact me.

Sincerely,

Mary E. T. Beach

Senior Associate Director

nates ee ed ECHR esr atom AY 40 on

APPENDIX B

RA-5

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Sa

No. 91 C 5525

oe

KENNETH F. BONNY, FRANCESCA B. BONNY

and ROBERT D. FLESVIG,

Plaintiffs,

—_Vv.—

THE SOCIETY OF LLOYD’s, HARRIS BANK GLENCOE-

NORTHBROOK, N.A., HARRIS TRUST AND SAVINGS BANK,

BANK OF MONTREAL, NORTHFIELD VENTURE, INC.,

ROBERT B. KING, ALAN J. HUNKEN, LIME STREET

UNDERWRITING AGENCIES LTD., ROBIN C. KINGSLEY,

ROBERT C. HALLAM, PATRICK M. CORBETT, and

BANKSIDE UNDERWRITING AGENCIES LTD.,

Defendants.

HONORABLE CHARLES R. NORGLE

ORDER

Before the court are the objections of plaintiffs Kenneth F.

Bonny, Francesca B. Bonny and Robert D. Flesvig to

Magistrate Judge Gottschall’s April 20, 1992 report and rec-

ommendation that plaintiffs’ amended complaint be dismissed.

For reasons that follow, the report and recommendation

(attached as Appendix A) is adopted and the plaintiffs’

amended complaint is dismissed.

RA-6

The defendants’ motion to dismiss the amended complaint

was referred to Magistrate Judge Gottschall pursuant to 28

U.S.C. § 636(b)(1)(B). The plaintiffs filed objections on May

4, 1992 to the Magistrate Judge’s report and recommendation.

Defendants Lime Street Underwriting Agencies, Ltd., Robin C.

Kingsley, Robert C. Hallam, Patrick Corbett, and Bankside

Underwniting Agencies, Ltd. filed a response on May 15, 1992

to the plaintiffs’ objections.

Upon a magistrate judge’s submission of a report and rec-

ommendation on a motion to dismiss, and the timely filing of

objections by a party to the proceeding, the district court must

make a de novo determination based upon the record and may

accept, reject or modify the recommended disposition. Fed. R.

Civ. P. 72(b); 28 U.S.C. § 636(b)(1)(C). The court has reviewed

the report and recommendation, and finds that it accurately

interpreted this court’s prior opinion denying the plaintiff’s

request for a preliminary injunction. Bonny v. Society of

Lloyd's, 784 F. Supp. 1350 (N.D. Ili. 1992). The report and rec-

ommendation is also well-supported by the record and the

applicable law. Accordingly, the report and recommendation is

adopted and the defendants’ motion to dismiss the amended

complaint is granted.

IT Is SO ORDERED.

ENTER:

[Ch e ] » R N | |

CHARLES RONALD NORGLE, SR., Judge

United States District Court

DATED: [5/29/92]

RA-7

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

te

No. 91 C 5525

+ —

KENNETH F. BONNY, FRANCESCA B. BONNY

and ROBERT D. FLESVIG,

Plaintiffs,

THE SOCIETY OF LLOYD’s, HARRIS BANK GLENCOE-

NORTHBROOK, N.A., HARRIS TRUST AND SAVINGS BANK,

BANK OF MONTREAL, NORTHFIELD VENTURE, INC.,

ROBERT B. KING, ALAN J. HUNKEN, LIME STREET

UNDERWRITING AGENCIES LTD., ROBIN C. KINGSLEY,

ROBERT C. HALLAM, PATRICK M. CORBETT, and

BANKSIDE UNDERWRITING AGENCIES LTD.,

Defendants.

—

REPORT AND RECOMMENDATION ON

DEFENDANTS’ MOTIONS TO DISMISS

TO THE HONORABLE CHARLES R. NORGLE, SR., one of the

Judges of the United States District Court for the Northern

District of Illinois.

In its Report and Recommendation issued on September 26,

1991, this court concluded that plaintiffs had shown a likeli-

hood of success on the merits of their claim that the forum

RA-8

selection and choice oi law clauses in their contractual under-

takings with defendants should not be enforced. This court read

the relevant decisions of the Supreme Court and the anti-waiver

provision of the 1933 Securities Act to mean that if the com-

bined effect of the parties’ forum selection and choice of law

clauses was to make it likely that plaintiffs would lose not only

a judicial forum but their securities law cause of action, the

clauses should not be enforced.

In rejecting this court’s recommendation in his February 24,

1992 Order (“the Order”), Judge Norgle clearly rejected this

court's interpretation of the governing law. Judge Norgle ruled

that once it is determined that an agreement is “international,”

the anti-waiver provision of the 1933 Securities Act will not

overcome the parties’ freely-negotiated forum selection and

choice of law clauses.

While Judge Norgle’s decision establishes only that plaintiffs

have not shown a likelihood of success on the merits and does

not necessarily mean that their claims must be dismissed, this

court views Judge Norgle’s decision as dispositive for all prac-

tical purposes. The contracts at issue are clearly “international”

in the sense described by Judge Norgle. This court beiieves that

based upon that finding, Judge Norgle would uphold the forum

selection clauses on this record.

This court might well reach this same conclusion applying its

Own interpretation of the relevant Supreme Court precedents.

On a fuller examination of English law, it might conclude that

an English forum would adequately allow plaintiffs the oppor-

tunity to vindicate their rights. It might conclude that plaintiffs’

securities claims are barred by limitations, that the claims must

be arbitrated or that the allegations of fraud are insufficient to

disturb the iniegrity of plaintiffs’ letters of credit. But pursu-

ing any cf ihese issues would be expensive and time-consum-

ing for the parties. Since this court views Judge Norgle’s

analysis of the issues as dispositive of a controlling question of

law raised by the motions to dismiss, it sees no good reason to

delay the proceedings further. Based on Judge Norgle’s order

of February 24, 1992, therefore, it is recommended that the

forum selection clauses of the parties’ agreements be upheld,

RA-9

and that accordingly, the Motions to Dismiss the Amended

Complaint of Defendant The Society of Lloyd’s and

Defendants Lime Street Underwriting Agencies Ltd., Robin C.

Kingsley, Robert C. Hallam, Patrick M. Corbett and Bankside

Underwriting Agencies Ltd., be granted.

Counsel are given ten days from the date hereof to file objec-

tions to this Report and Recommendation with the Honorable

Charles R. Norgle, Sr. Failure to object constitutes waiver of

the right to appeal.

Respectfully submitted,

{Joan B. Gottschall]

JOAN B. GOTTSCHALL

United States Magistrate Judge

DATED: April [20], 1992