Petition for Writ of Certiorari — In re Allen

Supremé Court, 0.8.

FILED

\) 96115 1 DEC 10 19%6,

No. Dine OF THE CLERK

IN THE

Supreme Court of the United States

October Term, 1996

In re LOUIS F. ALLEN, et al., Petitioners

Petition for a Writ of Mandamus 5

COP to the United States Court of Appeals

for the Fourth Circuit and

The Honorable Paul V. Niemeyer, M. Blane Michael and

Diana Gribbon Motz, Circuit Judges

PETITION FOR A AMUS

ee ee

A. Stephens Clay

Counsel of Record

Susan A. Cahoon

KILPATRICK & CODY, L.L.P.

1100 Peachtree Street, Suite 2800

Atlanta, Georgia 30309-4530

(404) 815-6500

Counsel for Petitioners

CeriVet

December 10, 1996 RECEIVED

7K STR gal: es 9 /

CASILLAS PRESS, INC., 1717 K STREET, N.W., WASHINGTON. DB 2)A36

OFFICE UF tne CLERK

SUPREMS COURT, U.S. J

NA eee

QUESTION PRESENTED

Is it a usurpation of judicial power prohibited by due pro-

cess and by the Federal Rules of Appellate Procedure for a

court of appeals, using expedited procedures to hear an

emergency motion to stay a preliminary injunction pending ap-

peal, to go beyond the issues presented by that motion, to

make dispositive findings of fact, to reach ultimate conclusions

on the merits and to direct the dismissal of a complaint that

involved important questions about the extraterritorial reach

of the disclosure obligations imposed by the federal securities

laws and the effect of the anti-waiver provisions of those laws

on the enforcement of forum selection and choice of law

agreements required by a private foreign enterprise from

thousands of U.S. investors, when the appellate court so acted

(a) sua sponte and without any notice to the parties that it con-

sidered itself empowered to do so; (b) without access to or

review of the record relied upon by the district court: (c)

without confining itself even to the merits of the only appealable

order from which an appeal had been noticed; and (d) without

following any of the procedures established by the Federal

Rules of Appellate Procedure to insure that the merits of ap-

peals are decided on the basis of a complete record, full brief-

ing of all relevant issues, and adequate time for review,

deliberation and decision by the appellate court?

il

LIST OF PARTIES

The following parties were plaintiffs below and are Peti-

tioners before this Court:

Louis F. Allen; Carl K. Baker; Joyce P. Baker; Peter D. Ber-

rington; Oliver Birckhead; Florence Blaustein, Mary L. Bray;

T.K. Brooker; Donald J. Brooks; Joseph Callaghan; James

Cassel; Terry G. Chapman; J.A. Clawson; John K. Colvin;

Fred B. Cox; John Rawlyn Charles Crabtree; Christopher P.

Culp; Gordon C. Davidson; Rutherford Day; Donald D. Doty;

M.D.A. Emblin; Audrey Fisher; Donald B. Gimbel; Kenneth

J. Gimbel; Katherine Gooch; B.G. Harrison; Yumiko Honda;

Herbert W. Hoover, III; Margaret W. Jones; Donald K. Kent;

E.R. Kinnebrew, III; Walter J. Levy; Roland Ley; Suzanne

Rhulen Loughlin; George C. Lyman, Jr.; Charles P. Lyon;

Michael L. McDermott; Robert T. MclInerny; Arthur G.

Michels; Walter P. Muskat; Walter W. Muskat; A.D. Pistilli;

Robert A. Posner; Judson P. Reis; Harry W. Rhulen; Walter

A. Rhulen; J.O. Ricke; E. Joy Rose; Mark S. Rose; A.F.

Smith; Owen B. Tabor; Allen M. Taylor; Trude C. Taylor;

Karl Aronson; Joan R. Farrow; Jonathan M. Farrow; Joan R.

Farrow for the Estate of Jesse M. Farrow; Jack Fleck; Marilyn

Franckx; Isabel L. Gallagher; Jennifer A. Gallagher; Mary

Claire Gallagher; Robert E. Gallagher; Robert E. Gallagher,

Jr.; Thomas J. Gallagher; Thomas H. Green; Henry G. Hager;

Thornton Hutchins; Vince A. Konen; C.C. Lucas; Herbert A.

Middendorff; Pobert S. Denebeim; Dana Fisher, Sr.; William

Alexander Fle nce; Anne M. Gallagher; J. Patrick Gallagher;

Mark E. Gallagher; Mary Claire Gallagher as Executrix for

John P. Gallagher; Katherine Gallagher Goese; Allen S. Green;

Robert W. Hatch; Mary Claire G. Johnson; Thomas V. Leeds;

Guy A. Main; Eugene F. Middlekamp; Michael Montana; Bar-

bara H. Pisani; Richard B. Sanders; Jack R. Taylor; Ken

Noack; Robert L. Pisani; Larry D. Stroup; and Neville G.

Williams.

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The following parties were defendants below and are

Respondents before this Court:

Lloyd’s of London, an unincorporated association: Corpora-

tion of Lloyd’s, a/k/a Society and Council of Lloyd’s: Council

of Lloyd’s

The following parties appeared as amicus curiae in the

district court:

Government of the United Kingdom of Great Britain and

Northern Ireland; Securities and Exchange Commission:

California Insurance Commissioner; American Names Associa-

tion, Inc.; Louisiana Commissioner of Insurance

The following parties appeared as amicus curiae in the court

of appeals:

Association of Lloyd’s Members; Government of the United

Kingdom of Great Britain and Northern Ireland: National

Association of Insurance Brokers: California Insurance

Commissioner

Equitas Holdings Limited; Equitas Reinsurance Limited: and

Equitas Limited, a/k/a Equitas or Equitas Group were originally

named as defendants but were dismissed voluntarily from the

case by plaintiffs and were not parties at the time of the rul-

ings for which review is sought.

The members of the panel of the Untied States Court of

Appeais for the Fourth Circuit to whom Petitioners seek a

writ of mandamus from this Court are the Honorable Paul V.

Niemeyer, M. Blane Michael and Diana Gribbon Motz, Cir-

cuit Judges.

Et. cae a nw Le ae 0 A a ec RE RE NS 2 ts

V

TABLE OF CONTENTS

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CONSTITUTIONAL PROVISIONS AND

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REASONS FOR GRANTING THE WRIT...........

Having agreed to hear an expedited basis Lloyd’s ex-

traordinary motion for a stay of a preliminary injunc-

tion granted four days previously, at the conclusion

of the hearing the Fourth Circuit Court of Appeals

acted sua sponte and without any prior notice to dismiss

entirely Petitioners’ claims under the federal securities

laws and thereby exceeded its jurisdiction; failed to

follow the limitations imposed on its appellate powers

by the Federal Rules of Appellate Procedure and the

due process clause of the Fifth Amendment; made

dispositive findings of fact without any transmitted

peeeca il

Paeea 4

vi

Page

factual record at a time when the record below was

not yet complete, thereby preventing Petitioners from

presenting their entire case as guaranted by due pro-

cess; and, in the context of such a radically foreshorten-

ed ad hoc procedure, nevertheless decided important

and previously unresolved issues about the extrater-

ritorial reach of the disclosure obligations un U.S.

securities laws and the application of the anti-waiver

provisions in those laws to forum selection and choice

of law clauses in contracts between Americans and

private international business entities; thereby unlaw-

fully usurpifig judicial »OWer In a manner calling upon

this Court to grant Muti tT a

‘Qu, as the only court with authority to super-

vise and correct the action of a court of appeal... 12-13

The Flaws in the Fourth Circuit’s Procedures ... ...14

The Importance of the Issues Improperly

Addressed Using These Truncated Procedures .. ...22

Vil

TABLE OF AUTHORITIES

Cases Page

Allen v. Lloyd’s of London, :

PO Fe Weed PO Ree AO i ba o's Rae ck bac dtp hctun passim

Bersch v. Drexel Firestone, Inc., 519 F.2d 974

(2d Cir.), cert. denied, 423 U.S. 1018 (1975)...... eee

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

1993), cert. denied, 510 U.S. 1113 (1994).......... pagers

Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991)... .22. 2%

Chevron U.S.A. Inc. v. Natural Resources Defense

Comment, ine., 467 U.S. G37 GOGA).. ccc cciacesns oo

Consolidated Gold Fields, PLC v. Minorco, S.A..,

B/i #.26 252 Gd Cw. 1069)............ eS Ameena es 28

Fuentes v. Shevin, 407 U.S. 67 (1972)............ 2]

Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281

NN ROE Mech heat ook se rea er ee oe 14

Hartford Fire Ins. v. California Merritt

Underwniting Agency Management, Ltd.,

a te | RA ae ee ER, ve

Leasco Data Processing Equipment Corp. v.

Maxwell, 468 F.2d 1326 (2d Cir. 1972)................. 28

Los Angeles Brush Manufacturing Corp. v.

FORE, Hie Bh tie Tk SAT vino 6 Kc no ev evn bak eka sac we a

Mills v. Electric Auto-Lite Co., 396 U.S.

Ra CRUNOMER ge oe dee kh aod wield ore“ , 46

Mitsubishi Motors Corp. v. Soler Chrysler-

Poon, Fr. Sis Uc. GER Ca a von ces eke ce wvien 23

Riley v. Kingsley Underwriting Agencies, Ltd.,

969 F.2d 953 (10th Cir.), cert. dented,

BG ae, See Cc eb volebenwheckacas ss sbeaeei ll

Roby v. Corporation of Lloyd's,

996 F.2d 1353 (2d Cir.), cert. denied,

EG Ai ee RE COE ae oe CECT eee he eee pees ean ll

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974).........23

Schlagenhauf v. Holder, 379 U.S. 104 (1964).............. 21

SEC v. C.M. Joiner Leasing Corp.,

ee Shee Re Cha Cae es OR OE eee e DE e WE eee bas 19

SEC v. Capital Gains Research Bureau, Inc.,

ee AAcee ae RE or 2h oe Ree eee ae tea Web S 24

SEC v. Wis. Howey Co., 328 U.S. ZIS (ISEB). ceca es 17

Shearson/Amencan Express Inc. v. McMahon

GRE REL ae Cee eer boos ea sae CANS eb saeees 23

Shell v. R.W. Sturge Lid.,

CR te ee, MU A ee ll

The Bremen v. Zapata Off-Shore Co.,

SCT GS. 3 TUG e i bv eeues Pct an Nera rae ae 9, 22, 23

Thornburgh v. American Coliege of Obstetricians and

Gynecologists, 476 U.S. 749 (1986). .............06. 15, 16

Page

Tores v. Oakland Scavenger Co.,

MOU tas ee ES & vi Oh 6 ak Ko Chia bee RE Rs 15

United Hous. Foundation, Inc. v. Forman,

Be Bas SE oa a ned Che aw a wek Oa aOR AR 17

University of Texas v. Camenisch,

Be Bie ee TK oa CS ek EARP 16, 21

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

ks Pe tes ks ee COAG Mick ee oe in Vea ee 24;:20

Statutes

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iene SR Si cee em ae eet 21

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Rules

17 C.F.R. § 240.3a12-3(a)..... PURaet to oka oma eae wk eae

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Constitutional Provisions

Si a ET i aka ad eee’ 2. 12, 2e

Other Authorities

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g i

_ PETITION. FOR-A-WRIPOF-MANDAMLS, ies

Petitioners Louis F. Allen and other investors in Lloyd’s

of London, plaintiffs below (‘‘Petitioners’’), respectfully pray

that a writ of mandamus 0S EG issue to

review the order announced from the bench by the United

States Court of Appeals for the Fourth Circuit on August 27,

1996, which was explained by a published opinion from that

court filed September 3, 1996. Only this Court has power to

supervise the actions of a United States court of appeals and

compel it to follow procedures required by the Constitution,

the statutes defining the jurisdiction of courts of appeal and

the Federal Rules of Appellate Procedure.

OPINIONS BELOW

The decision of the Court of Appeals for the Fourth Circuit

is published at 94 F.3d 923 and is reprinted in the accompany-

ing separate Appendix (‘‘App.’’) to this petition at App.,

pp. la-15a. The unpublished order of that court denying Peti-

tioners’ Motion for Reconsideration or, In the Alternative,

Rehearing En Banc, is reprinted at App., pp. 147a-149a. The

unpublished order of that court denying Petitioners’ Motion

for Stay of Mandate is reprinted at App., pp. 150a-152a. The

unpublished order of the United States District Court for the

Eastern District of Virginia (Payne, J.), denying Respondents’

motion to dismiss and granting Petitioners’ motion for

preliminary injunction, is reprinted at App., p. 16a. The

preliminary injunction order of that court is reprinted at App.,

pp. 17a-21a. That court’s Memorandum Opinion in support

of the foregoing orders is reprinted at App., pp. 22a-146a.

JURISDICTION

Jurisdiction of this Court is invoked under 28 U.S.C. § 1651(a),

which authorizes this Court to issue a wnt of mandamus when

necessary to prevent an appellate court from usurping powers

ne ae

of appeals. Phe Wourth Circuit's Gecisioftik-thiseBse was rend-

ered orally on August 27, 1996 and confirmed in a published

opinion dated September 3, 1996 that reversed the judgment

of the district court granting Aaprgliminary injunction and deny-

ing a mdtion to dismiss, ‘with directions to the district court

to dismiss the Petitioners’ complaint. Petitioners filed an

Emergency Motion for Reconsideration or, In the Alternative,

Suggestion for Rehearing En Banc on August 30, 1996, which

was denied by the Fourth Circuit on September 11, 1996.

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

The Fifth Amendment to the United States Constitution pro-

vides as follows:

No person shall be held to answer for a capital,

or otherwise infamous crime, unless on a present-

ment or indictment of a Grand Jury, except in cases

arising in the land or naval forces, or in the Militia,

when in actual service in time of War or public

danger; nor shall any person be subject for the same

offense to be twice put in jeopardy of life or limb;

nor shall be compelled in any criminal case to be a

witness against himself, nor be deprived of life, liber-

ty, or property, without due process of law; nor shall

private property be taken for public use, without just

compensation.

Federal Rule of Appellate Procedure 3(c) provides that:

A notice of appeal must specify the party or par-

ties taking the appeal by naming each appellant in

either the caption or the body of the notice of ap-

peal. An attorney representing more than one par-

ty may fulfill this requirement by describing those

parties with such terms as ‘‘all plaintiffs,’’ ‘‘the

_defendants,”’ ’'the. plaintifis.4,.Boet al.,’’ or ‘‘all

defendants except X.’’ A notice of appeal filed pro

3

se is filed on behalf of the party signing the notice

and the spouse and minor children, if they are par-

ties, unless the notice of appeal indicates a contrary

intent. In a class action, whether or not the class

has been certified, it sufficient for the notice to name

one person qualified to bring the appeal as represen-

tative of the class. A notice of appeal also must

designate the judgment, order, or part thereof ap-

pealed from, and must name the court to which the

appeal is taken. An appeal will not be dismissed for

informality of form or title of the notice of appeal,

or for failure to name a party whose intent to appeal

is otherwise clear from the notice. Form 1 in the

Appendix of Form is a suggested form for a notice

of appeal.

Petitioners’ causes of action in the district court were

based upon the anti-fraud and proxy disclosure requirements

contained in §§ 10(b) and 14(a), respectively, of the Securities

Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78n(a), which

provide as follows:

§ 10(b):

It shall be unlawful for any person, direc tly or in-

directly, by the use of any means or instrumentality

of interstate commerce or of the mails, or of any

facility of any national securities exchange —

(b) To use or employ, in connection with the pur-

chase or sale of any security registered on a national

securities exchange or any security not so

registered, any manipulative or deceptive device or

contrivance in contravention of such rules and regula-

tions as the Commission may prescribe as necessary

or appropriate in the public interest or for the pro-

tection of investors.

\ 14(a):

It shall be unlawful for any person, by the use of

the mails or by any means or instrumentality of in-

terstate commerce or of any facility of a national

securities exchange or otherwise, in contravention

of such rules and regulations as the Commission may

prescribe as necessary or appropriate in the public

interest or for the protection of investors, to solicit

or to permit the use of his name to solicit any proxy

or consent or authorization in respect of any securi-

ty (other than an exempted security) registered pur-

suant to section 781 of this title.

The anti-waiver provision of the Securities Exchange Act

of 1934, 15 U.S.C. § 78cc(a), provides that:

(a) Any condition, stipulation, or provision bind-

ing any person to waive compliance with any provi-

sion of this chapter or of any rule or regulation

thereunder, or of any rule of an exchange required

thereby shall be void.

STATEMENT OF THE CASE

Initial Proceedings

Petitioners are citizens of the United States who were

solicited in this country at various times from the 1950s through

the 1980s by representatives of Lloyd’s to become investors

at Lloyd’s. Lloyd’s refers to its investors as ‘‘Names.”’

Respondents are Lloyd’s of London, an unincorporated

association, Corporation of Lloyd’s, a/k/a Society and Coun-

cil of Lloyd’s and Council of Lloyd’s (collectively ‘‘Lloyd’s’’),

defendants below, and the Circuit Judges to whom mandamus

is sought.

Names provide Lloyd’s with capital to underwrite Lloyd’s

insurance policies. Names make no underwriting decisions

about who will be insured, the premiums to be charged or how

5

insurance claims will be handled. Names also make no deci-

sions about how premiums paid by policyholders in whose risk

they participate are invested. Instead, insurance and invest-

ment professionals involved in managing the various insurance

syndicates that issue Lloyd’s policies are responsible for all

of these decisions.

Petitioners filed this action on June 28, 1996 in the Eastern

District of Virginia. In their complaint, as amended (‘‘First

Amended Complaint’’), Petitioners sought pursuant to § 14(a)

of the Securities Exchange Act of 1934 (‘‘the 1934 Act’’), 15

U.S.C. § 78n(a), and the regulations promulgated by the

Securities and Exchange Commission (“‘SEC’’) pursuant

to that statute, 17 C.F.R.§§240.14a-3 and -9, to

compel Lloyd’s to disclose more financial information

about a $22 billion restructuring plan called the ‘‘Plan for

Reconstruction and Renewal’’ (the ‘‘R&R Plan’’) first an-

nounced generally by Lloyd’s in 1995.1 Among other things,

the R&R Plan converted the existing investment of Names

in particular syndicates that underwrote Lloyd’s insurance

policies into the capitalization for a new reinsurance company

formed by Lloyd’s known as Equitas Reinsurance Ltd.

(‘Equitas’). The R&R Plan included an offer by Lloyd’s for

itself and others, including managing agents of Lloyd’s syndi-

cates, solicitors, insurance brokers and accountants, whereby

all disputes between or among them, including existing and

potential lawsuits by Names worldwide, would be settled for

a total of $4.8 billion. Lloyd’s solicited Names to accept their

individual shares of the settlement offer and informed Names

worldwide that the plan could not be implemented unless most

of the Names accepted.

‘Petitioners also alleged that Lloyd's had violated § 10(b) of the 1934

Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5,

by making material misrepresentations or omissions in the information that

was supplied to Names about the R&R Plan. Petitioners later filed a mo-

tion for leave to file a supplemental Second Amended Complaint that add-

ed two new counts alleging additional substantive violations of other pro-

visions of the 1934 Act. These amendments were not considered by the

courts below and are not at issue here. See Mem. Op., App., pp. 23a-24a.

a s—SSOCOCOSCSSS*SY

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6

On July 19, 1996, Petitioners filed a motion for a preliminary

injunction to compel disclosures required by SEC regulations,

to enforce § 14(a) and to prohibit Lloyd’s from forcing them

and other American Names to make irrevocable elections about

the R&R Plan prior to Lloyd’s compliance with the applicable

disclosure requirements.

Lloyd’s responded to the Petitioners’ complaint on July 26,

1996 by filing a motion pursuant to Fed. R. Civ. P. 12(b)(3)

to dismiss their claims on the grounds that venue was inap-

propriate. Lloyd’s contended that a standard Lloyd’s General

Undertaking form agreement in force since 1987 that existing

Names were asked to sign in 1986 provided that all disputes

between a Name and Lloyd’s must be brought only in courts

in the United Kingdom and decided pursuant to the laws of

that country.? Lloyd’s also argued that venue was inappropriate

pursuant to the doctrine of forum non conveniens. Reserving

its position that the transactions at issue did not involve

securities within the meaning of the federal securities laws,

Lloyd’s expressly disclaimed reliance on that argument as a

basis for granting its motion to dismiss: ‘“These improper

venue and forum on conventens issues are dispositive of all

claims in this action regardless of whether the federal securities

laws have any application.’’ Memorandum of Law in Support

of Lloyd’s Motion to Dismiss the First Amended Complaint,

p. 4 n.3.

The parties submitted extensive bnefs, affidavits and eviden-

tiary materials to the district court relating to the preliminary

injunction prior to an evidentiary hearing. At the invitation of

the district court, the SEC appeared as amicus cunae and sub-

mitted a brief supporting Petitioners’ position that Lloyd’s

forum selection and choice of law clauses should not be en-

forced because they violated the anti-waiver provisions of the

1934 Act, 15 U.S.C. § 78cc(a), and offend the public policy

embodied in the securities laws.

2On the record before the appellate court, only one of Petitioners had

acknowledged signing this new version of the General Undertaking.

7

On Friday evening, August 23, 1996, Judge Robert E. Payne

granted Petitioners’ motion for a preliminary injunction,

directed Lloyd’s to make disclosures required by § 14(a) and

applicable SEC regulations by September 23, 1996, prohibited

Lloyd’s from taking steps to collect any amounts from

American Names pending completion of the disclosure and

review process, established bond and other requirements to

protect Lloyd’s from injury pending the trial, ordered the par-

ties to confer about a discovery schedule, and set a November

4, 1996 trial date. The district court also issued a separate

order that denied Lloyd’s motion to dismiss the First Amended

Complaint. These orders were supported with a lengthy

Memorandum Opinion that extensively reviewed the evidence

of record and the legal arguments of the parties.

Moments after Judge Payne released his opinion and orders

to the parties, Lloyd’s filed a notice of appeal. See App., pp.

153a-156a. The appeal was taken solely from the order gran-

ting the preliminary injunction. Even before Judge Payne had

ruled or Lloyd’s had filed any motions or other papers with

the Fourth Circuit, Lloyd’s made ex parte arrangements

through the office of the clerk of the Fourth Circuit to receive

extraordinary expedited consideration of a motion to stay any

preliminary injunction that might be entered by the district

court. Lloyd’s was directed to file its motion to stay by noon

on Sunday, August 25; Petitioners were to respond by 5:00

p.m. on Monday, August 26; and a panel would hear the mo-

tion on Tuesday, August 27, at 9:30 a.m. Petitioners were

given no opportunity to participate in these communications

or to dissuade the Fourth Circuit from approaching the case

in such an unnecessarily hasty manner.

On Sunday, Lloyd’s filed a ‘‘Motion for Stay Pending Ap-

peal’ pursuant to Fed. R. App. P. 8(a) and Fourth Circuit

Rule 8 to suspend the effect of the preliminary injunction, argu-

ing that the court below had misapplied the Fourth Circuit stan-

dards for a preliminary injunction. In that context, Lloyd’s

argued that Petitioners were unlikely to succeed on the merits

8

because, inter alia, the district court had erred in deciding

that the forum selection clause did not require dismissal of

Petitioners’ claims.

Lloyd’s never requested expedited consideration of the

merits of its appeal; rather, Lloyd’s argued that it needed a

stay of the preliminary injunction because of the purported

harm to Lloyd’s if it could not proceed with its August 28

deadline for acceptances of the R&R Plan. At no time before

or during the hearing in the Fourth Circuit did Lloyd’s request

any relief other than a stay. The court of appeals never sug-

gested that it was considering relief other than a stay. No order

was ever entered by the court of appeals that altered or

modified the normal merits briefing deadlines or other re-

quirements of the Federal Rules of Appellate Procedure. Peti-

tioners had no notice whatsoever that the appellate court con-

sidered itself authorized to consider the unappealed denial of

Lloyd’s motion to dismiss, or to decide the entire appeal.

Petitioners submitted their bref in opposition to Lloyd’s mo-

tion to stay by 5:00 p.m. on Monday, August 26. Both Lloyd’s

and Petitioners submitted excerpts from the affidavits and

other evidentiary materials presented to the district court in

connection with the preliminary injunction hearing. Lloyd’s

never arranged to transmit the record from the court below,

as required in an appeal by Fed. R. App. P. 10 and 11. The

Fourth Circuit never had access to the entire record developed

in the district court.

The panel heard oral argument as scheduled at 9:30 a.m.

on Tuesday, August 27. At the outset of oral argument, the

presiding judge informed the parties that the panel had re-

viewed all of the parties’ appellate filings, except for certain

evidentiary materials submitted by Petitioners. The panel

stated that it intended to allow extended oral argument, retire

for a luncheon recess and announce its decision at 2:00 p.m.

When the panel returned from its recess after the conclu-

9

sion of oral argument as scheduled, the following order was

announced from the bench:

On motion of appellants to stay the district court’s

injunction entered August 23, 1996, and upon a con-

sideration of the briefs, papers, and extensive

arguments of counsel, the Court grants the motion.

Because the Court’s decision rests on its determina-

tion, to be articulated in a later opinion, that the con-

tractual provisions among the parties selecting the

law of and a forum in the United Kingdom should

be enforced, we reverse and remand this case with

instructions that the district court dismiss it.

This order was the first indication from the panel that dismissal

of the case was at issue.

Lloyd’s has subsequently maintained that this mandate re-

quires the dismissal of all claims, even as to Petitioners who

had never signed any agreement with Lloyd’s containing the

choice clauses at issue.

The Decision Below

The panel’s later opinion explained that this Court’s deci-

sion in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972),

and subsequent cases require that choice of forum and law

provisions be enforced unless, among other things, enforcing

the choice of law provision would contravene a strong public

policy of the forum state. The district court had concluded that

U.S. public policy requiring certain disclosures to investors,

as confirmed by the anti-waiver provisions contained in the

federal securities laws, would be subverted by enforcement

of the choice clauses in this case, in which Petitioners primarily

sought to compel disclosures that are required pursuant to

SEC regulations that implement § 14(a) of the 1934 Act. Peti-

tioners sought these disclosures so that they could make an

informed decision whether to accept or reject Lloyd’s R&R

Plan offers.

10

The panel’s opinion in this case is the first time a court of

appeals has considered the anti-waiver provision in the con-

text of the prophylactic disclosure obligations created by § 14(a)

and applicable SEC regulations. As to disclosure, the panel

concluded that, ‘‘{[W]e do not believe that Congress intended

that the disclosure requirements of the United States securities

law be exported and imposed as governing principles on

markets conducted entirely in other countries simply because

membership in such markets is solicited in the United States.’’

94 F.3d at 929 (emphasis in the original), despite the evidence

in the record developed for the preliminary injunction of Lloyd’s

extensive involvement in disseminating offering materials and

raising capital throughout the United States. The panel also

held that a failure to enforce the choice clauses would ‘‘violate

the most fundamental precepts of international comity”’

because ‘‘[iJmposing United States securities laws on this

foreign market would directly contravene the very rules and

regulations adopted in Britain for the creation and operation

of the Lloyd’s market to which the Names subscribed.’” Jd.

at 930. However, the panel opinion cited no rule or regula-

tion adopted in Britain that forbade Lloyd's from making the

disclosures required by the U.S. laws, nor is there any record

evidence of such a provision.

The pane! also suggested that significant interests in the U.S.

and foreign countries would be adversely affected if Lloyd’s

were required to comply with the U.S. disclosure requirements

in connection with their solicitation of U.S. citizens to be-

come Names. At the same time, the court left undisturbed

the portions of the district court’s decision concluding that

the initial investments made by Names in Lloyd's

3The panel apparently relied on representations made in briefs submit-

ted by amici cunae that filed motions on August 26 for leave to submit

briefs. The panel orally granted these motions at the argument on Lloyd’s

motion to stay on August 27. Petitioners had no opportunity to object to

these motions, as permitted by Fed. R. App. P. 27(a) and 29, or to res-

pond fully to the substance of arguments or representations of fact in the

briefs that were not supported by record evidence in this case.

1]

were likely, on the ultimate merits of the case, to be deerned

to be an investment in a security. Jd. The panel failed even

to mention the position of the SEC as amicus cunae in the

district court that enforcement of the forum selection and

choice of law clauses with respect to Petitioners’ claims would

contravene the anti-waiver provisions of the federal securities

laws and the important public policies expressed in those laws.

As to fraud, the panel followed the decisions of other courts

of appeal* that have concluded that the availability of parallel

damages remedies under British law sufficed to implement the

purpose of the anti-fraud provisions of the federal securities

laws. 94 F.3d at 929. The panel did not express any concern

that English causes of action are more narrowly circumscrib-

ed, or the remedies more limited, than those available under

U.S. law, either to deter fraud in the future or to redress the

harm done to victims of fraud in connection with the purchase

and sale of securities, or that the anti-waiver provisions

contained in the securities laws directly forbid the enforce-

ment of a choice clause that sends a claimant to a forum that

will not enforce the subtantive provisions of U.S. securities

laws. In contrast, Judge Payne’s opinion thoroughly review-

ed these issues, generally (see Mem. Op., App., pp. 66-71a)

and in the context of the R&R Plan, which contained a specific

waiver of any disclosure duty, as well as waivers of virtually

all the theoretical causes of action under British law mentioned

by the panel.5 /d., pp. 45a-46a. Based on his review of the

of Lloyd's, 3 F.3¢ 156 (7th Cir. 1993), cert. denied, 510 U.S. 1113 (1994);

Roby v. Corporation of Lloyd’s, 996 F.2d 1353 (2d Cir.), cert. dented, 510

U.S. 945 (1993); Riley v. Kingsley Underwniting Agencies, Ltd., 969 F.2d

953 (10th Cir.), cert. denied, 506 U.S. 1021 (1992).

‘Because British courts will not apply U.S. statutory laws, see Roby v.

Corporation of Lloyd’s, 996 F.2d 1353, 1362 (2d Cir.), cert. denied, 510

U.S. 945 (1993), and the district court’s opinion, Mem. Op., App., pp.

09a, the anti-waiver provision would not nullify these provisions.

12

facts, as well as the law, Judge Payne found that the anti-waiver

provisions in the securities laws were violated because the

choice clauses would leave Petitioners in a foreign forum that

would not hear their statutory cause of action. Jd., pp. 56a-63a.

Following the announcement of the panel’s order, Peti-

tioners filed their Emergency Motion for Reconsideration or,

In the Alternative, Suggestion for Rehearing En Banc on

August 30, 1996. After the September 3 opinion from the

panel, Petitioners supplemented their motion on September

9. On September 11, the Motion for Reconsideration or, Alter-

natively, Rehearing En Banc, was denied. Petitioners subse-

quently moved for a stay of the mandate on September 18,

which was denied on September 20.

REASONS FOR GRANTING THE WRIT

Having agreed to hear on an expedited basis Lloyd’s

extraordinary motion for a stay of a preliminary in-

junction granted four days previously, at the conclu-

sion of the hearing the Fourth Circuit Court of Appeals

acted sua sponte and without any prior notice to dismiss

entirely Petitioners’ claims under the federal securities

laws and thereby exceeded its jurisdiction; failed to

follow the limitations imposed on its appellate powers

by the Federal Rules of Appellate Procedure and the

due process clause of the Fifth Amendment; made

dispositive findings of fact without any transmitted fac-

tual record at a time when the record below was not

yet complete, thereby preventing Petitioners from

presenting their entire case as guaranteed by due pro-

cess; and, in the context of such a radically foreshorten-

ed ad hoc procedure, nevertheless decided important

and previously unresotved issues about the extrater-

ritorial reach of the disclosure obligations under U.S.

securities laws and the application of the anti-waiver

provisions in those laws to forum selection arid choice

of law clauses in contracts between Americans and

13

private international business entities: thereby

unlawfully usurping judicial power in a manner call-

ing upon this Court to grant a writ of mandamus @,

| ARR only court with authori-

ty to supervise and correct the actions of a court of

appeals.

Only this Court has power to issue writs of mandamus Fe

@uucmp to supervise the actions of a court of appeals. The

extraordinary ad hoc procedures adopted in this case so depart

from the Federal Rules of Appellate Procedure, the accepted

and usual course of judicial proceedings, and the constitutional

requirements of due process as to call for an exercise of this

Court’s supervisory power. In less than four days, the panel

forced Petitioners to proceed from a thoroughly considered

preliminary injunction order to an unannounced, full-scale

review of the merits of their entire case. This Court’s interven-

tion and assistance is necessary if the credibility of the ap-

pellate process is to be preserved.

It is especially important that those supervisory powers be

exercised in chis case, because the product of the appellate

court’s hasty, ill-considered and uninformed deliberations is

a decision that addresses important, previously undecided

issues arising under the federal securities laws. The preceden-

tial impact of the decision may reach far beyond the parties

to this case and affect future decisions, not only with respect

to the fundamental procedural rights at issue, but in a substan-

tive area of substantial public importance — the extraterritorial

reach of the federal disclosure requirements to transactions

involving foreign enterprises that conduct much of their

underlying business outside the U.S., but obtain substantial

amounts of capital from thousands of U.S. investors.

This Court should set aside the panel’s order insofar as it

purports to dismiss Petitioners’ claims and require the Fourth

Circuit to conduct a full appeal limited to the issues raised by

Lloyd’s notice, as required by the Federal Rules of Appellate

14

Procedure,® so that any merits decision on these important

issues under the U.S. securities laws will be based on a full

eyidentiary record; complete briefing and argument to the ap-

pellate court of all relevant issues; apd.reasoned, fully infornged

deliberations.’

The Flaws in the Fourth Circuit’s Procedures

"This case had been pending for eight weeks at the. time.af

the preliminary injunction hearing. Because of the pending mo-

tion to dismiss, the only limited discovery (three depositions

and an exchange of hearing exhibits) was as agreed by the

parties for the preliminary injunction hearing. The limited

record was one typical of the preliminary injunction phase of

a case that itself was still in a very preliminary stage.

Petitioners do not know what Lloyd’s told the staff of the

Fourth Circuit about the calamities Lloyd’s contended would

ensue if Lloyd’s did not receive expedited consideration in that

court. All Petitioners know is that, even before Judge Payne

had entered his opinion, Lloyd’s had advised the clerk’s of-

fice that it would seek an emergency hearing of a motion to

stay in the event that Judge Payne’s decision granted Peti-

tioners any injunctive relief.

In Lloyd’s notice of appeal (see App., pp. 153a-156a), Lloyd’s

spec'fically appealed only from the order granting a preliminary

injunction, the only order subject to immediate appeal pursuant

‘Petitioners concede that the accelerated process was within the Fourth

Circuit's power as long as the decision was limited to the stay issue.

‘Petitioners sought to enjoin the consummation of the R&R Plan until

a reasonable time after Lloyd’s had made the disclosures required by § 14(a)

and applicable SEC regulations. Although Lloyd’s original, self-imposed

August 28 deadline for accepting the R&R Plan has passed, Lloyd’s has

since extended the deadline until February 1997. For Names who made

an election about the R&R Plan without the benefit of the required

disclosures, rescission and damages are also available remedies for a § 14(a)

violation. See Mills v. Electnc Auto-Lite Co., 396 U.S. 375 (1970); Gerstle

v. Gamble-Skogmo, Inc., 478 F.2d 1281 (2d Cir. 1973). The appropriate

remedy should be left to the trial court upon remand.

15

to 28 U.S.C. § 1292(a)(1). Fed. R. App. P. 3(c) states that,

‘‘A notice of appeal . . . must designate the . . . order, or

part thereof, appealed from.’’ This Court has held that the

requirements of Fed. R. App. P. 3(c) are jurisdictional. See

Tores v. Oakland Scavenger Co., 487 U.S. 312 (1988). Thus,

the only issue that was properly before the court of appeals

on the merits was the district court’s order granting the

preliminary injunction.

Consequently, the only issue briefed and before the panel

on Tuesday, August 27, was Lloyd’s ‘‘Emergency Motion to

Stay.’’ That motion did not even seek expedited considera-

tion of the merits of Lloyd’s appeal from the preliminary in-

junction order. Without any notice to the parties, either before

or during argument, that it intended to do so,

the panel in its decision went far beyond the issue of whether

to grant or deny such an emergency motion. By reaching out

to decide the entire case, the panel abrogated all of the pro-

cedural rules intended to assure that an appellate court has

before it the complete record on the issues raised by the ap-

peal, that the parties have fully briefed all of those issues, and

that the court itself has had adequate time to review the record

and the briefs and to deliberate. See, e.g., Fed. R. App. P.

10, 11, 12, 28, 30 and 31. That the panel made such an ex-

traordinary decision in the absence of any trial court record

is particularly surprising in light of the many factual findings

reflected in the appellate opinion.

This Court has described the limited circumstances under

which review may proceed on the ultimate merits of a claim

in the context of an appeal from a preliminary injunction:

(If a district court’s ruling rests solely on a premise

as to the applicable rule of law, and the facts as

established are of no controlling relevance, that rul-

ing may be reviewed even though the appeal is from

the entry of a preliminary injunction.

Thornburgh v. American College of Obstetricians and Gyneco-

16

logists, 476 U.S. 749, 759 (1986). However, as this Court has

recognized,

A different situation is presented, of course, when

there is no disagreement as to the law, but the prob-

ability of success on the merits depends on facts that

are likely to emerge at trial.

Id. at 757, n. 8. See also University of Texas v. Camentsch,

451 U.S. 390 (1981) (recognizing that it is generally inap-

propriate for a federal court at the preliminary injunction stage

to give a final judgment on the merits).

The panel opinion is replete with explicit and implicit

references to critical fact issues, hotly disputed in the district

court, about which Petitioners are now denied by the panel

their constitutionally guaranteed opportunity to present

evidence. For example, the panel held that the Lloyd’s market

is ‘‘conducted entirely’’ in England, 94 F.3d at 929, whereas

Petitioners’ evidence below demonstrated that Lloyd’s had

solicited U.S. investors in this country to provide hundreds

of millions of dollars in capital and had processed and paid in-

surance claims in this country as well. The panel found fur-

ther that all Petitioners were subject to a forum selection

agreement requiring that claims be pursued in England. The

evidence, however, established only that one of the Names

in this litigation was subject to such a forum selection agree-

ment. As Petitioner Herbert Hoover, III, established in an

affidavit filed in the Fourth Circuit, some Names (including Mr.

Hoover) had ceased investing in Lloyd’s before 1987, the ef-

fective date of Lloyd’s first forum selection clauses. The panel

did not know that at the time of its August 27 decision, yet

dismissed each Petitioner’s federal securities law claims on

the basis of the enforceability of a forum selection clause to

which only one of them was proven to have agreed.

Additionally, the panel found that Lloyd’s new Equitas rein-

surance vehicle was not a “‘security’’ subject to the disclosure

and anti-fraud requirements of the federal securities laws. Such

17

a finding clearly required a fact-based analysis of the nature

of the investment vehicle, the R&R Plan and Lloyd’s solicita-

tion activities related to the R&R Plan. See Mem. Op., App.,

pp. 122a-136a. Whether Petitioners’ investment in Lloyd’s

or in Equitas is an ‘‘investment contract’’ security must be

decided under the tests announced in SEC v. W.J. Howey Co.,

328 U.S. 293, 298-99 (1946), as amplified by United Hous.

Foundation, Inc. v. Forman, 421 U.S. 837, 851-52 (1975).

The panel could not have conducted such a factual analysis

properly or even tested Judge Payne’s fact-based preliminary

conclusions in the absence of the record required by Fed. R.

App. P. 10, 11 and 12. Petitioners also should not have been

forever foreclosed from developing further evidence through

discovery and presenting that evidence at trial.

By essentially foreclosing not only the usual appellate review

process but also further proceedings on these issues in the

trial court, the panel revealed a shockingly premature

eagerness to reach dispositive fact-based conclusions without

any adequate record on those facts. Indeed, as to the eviden-

tiary materials Petitioners had selected to oppose Lloyd’s

emergency motion to stay from the limited record developed

for purposes of the preliminary injunction hearing, the presiding

judge conceded at the outset of the oral argument:

[W]e received on Sunday materials from Lloyd's,

which was a large box, and I think we’ve all had an

opportunity to review that, although the exhibits are

voluminous, and we may be asking you questions

about what is contained in that record, and I don’t

know if that pretends to be the full record or not.

I understand the full record is a large volume of

materials. And then on Monday we received

materials from the plaintiffs below, the names, and

we read those materials. When I say the materials,

your memorandum, it was also accompanied by a lot

of exhibits, and I don’t dare to represent on behaif

of everybody here whether we read all of those,

18

because I’m not sure of the answer to that, but we

have looked through these materials and tried to

bring ourselves up to a level of understanding that

is possible in that short time.

Transcript, Oral Argument, Court of Appeals for the Fourth

Circuit, pp. 2-3.

Similarly, the panel’s conclusion that Lloyd’s involvement

in the United States with American investors was so insignifi-

cant that the U.S. laws requiring disclosures need not apply

involved fact-based conclusions about what the evidence

showed as to the nature and extent of that involvement. Such

conclusions could not properly be reached without review of

the history and nature of the original transactions; the pro-

cess by which Names were solicited; the nature and cir-

cumstances of the execution of documents, including any

agreement containing the choice clauses; the number of

American Names; the amount of their investments in the

Lloyd’s market; and a wide variety of other facts. The gather-

ing of evidence about those matters was not yet complete

because virtually no discovery had been conducted. The en-

tire record of the facts that had been presented in the limited

context of the preliminary injunction hearing® was not even

before the panel. As to those selected evidentiary materials

8Had the merits of Lloyd’s motion pursuant to Fed. R. Civ. P. 12(b)(3)

to dismiss fer improper venue based on a forum selection clause properly

been before the panel, it should have taken the wet pleaded allegations

in Petitioners’ complaint, assumed their truthfulness and then decided

whether the forum selection clause in tandem with the choice of law clause

could not be enforced in light of the antiwaiver provisions in the federal

securities laws. That was all Lloyd’s motion had asked. As Judge Payne’s

opinion noted, counsel for Lloyd’s reaffirmed that position during argu-

ment on the motion to dismiss. Mem. Op., App., p. 49a. Applying that

standard, the court should have assumed that Petitioners ultimately could

support their allegations with facts demonstrating, imter alia, that their

investments at Lloyd’s, including the proposed capitalization of Equitas,

were securities under U.S. law and then decided whether any forum and

choice of law clauses proven applicable to Petitioners’ investments were

(footnote continued)

19

the parties asked the court to consider in the context of Lloyd’s

motion to stay, the panel conceded at the outset of the August

27 oral argument that it had only had time to conduct a limited

review of the evidentiary exhibits selected by Petitioners.

Numerous other examples of inappropriate and unsubstan-

tiated fact-finding forays by the appellate court may be found

in the panel’s opinion. The opinion recounts a variety of facts

underlying its dispositive finding that no part of the R&R Plan

could be a security for purposes of the securities laws. See

94 F.3d at 930-31.9 The trial court, which had substantially

more time and the complete preliminary injunction record to

review, concluded as a preliminary matter that Petitioners

would likely be able to prove their contentions. Mem. Op.,

App., pp. 122a-130a. The panel also made a dispositive con-

clusion that no consent or authorization had been requested

about any aspect of the R&R Plan, other than an individual

Name’s acceptance of his individual settlement offer. Such a

conclusion required (but was not supported by) a thorough

understanding of all facts regarding the R&R Plan. The trial

court, which had the benefit of the entire record, concluded

(footnote continued)

enforceable, rather than reaching merits decisions about what the evidence

ultimately would prove. Instead, the panel embarked upon the extensive

factual analysis described above, essentially finding its own dispositive

‘“facts,’’ notwithstanding the absence of any transmitted record and the

preliminary state of the case.

°The panel also makes no reference to evidence that, during the months

when Lloyd’s heavily promoted the merits of the R&R Plan before it

delivered the final version to Names in late July, 1996, Lloyd’s stated that

each participating Name would acquire an equity interest in and oppor-

tunity for profit from Equitas. The market may well have been affected

by the prior representations. Such promotional materials are relevant in

deciding whether a particular investment is an ‘‘investment contract”’ and

thus a security within the meaning of the federal securities laws. See SEC

v. C.M. Joiner Leasing Corp., 320 U.S. 344, 352-53 (1943) (using such

evidence to hold that assignments of oil leases were “investment

contracts’’).

20

to the contrary on these issues. Jd., 138a-141a.'°

Without that record, the panel should not have determined

facts itself and foreclosed Petitioners from presenting further

proof. The panel should not even have decided whether Judge

Payne’s preliminary findings of fact were clearly erroneous

and substituted its own dispositive findings of fact when it did

not have all of the evidence available to review. Had the panel

followed the normal appellate process, significant evidence con-

tradicting its conclusions that undoubtedly would have led to

a different result would have been reviewed.

The panel’s opinion thus clearly reached a number of sub-

sidiary factual issues, resolved them in a manner adverse to

Petitioners and directed the district court to dismiss their

claims altogether, even though Petitioners had only a limited

opportunity for any discovery in the case and had not com-

pleted their underlying record at a trial on the merits. The

panel did so utterly without warning, notwithstanding that the

notice of appeal was confined to the preliminary injunction order

itself and that the briefs only addressed Lloyd’s motion for

a stay, not the ultimate merits of the case." |

The reason it is generally inappropriate to render a final judg-

ment based on a factual record developed at the preliminary

injunction stage of a case has its origins in the requirement

of the Fifth Amendment to the Constitution that persons be

afforded due process. At the core of procedural due process

is the right to notice and an opportunity to be heard. See, e.g.,

10 Inter alia, there was evidence that Lloyd’s told Names that, whether

Lloyd’s had power to force Names into Equitas, it would mot implement

the R&R Plan unless a sufficient number of Names accepted. See Mem.

Op., App., pp. 99a and 139a.

\1] loyd’s argued the strengths and weaknesses of the parties’ respec-

tive positions on the enforceability of the forum and choice of law provi-

sions in the context of an element required for preliminary relief — that

the movant establish a substantial likelihood of success on the merits.

21

Fuentes v. Shevin, 407 U.S. 67, 80 (1972). Fed. R. Civ. P.

65(a)(2) expressly recognizes these requirements by providing

that a federal court at a preliminary injunction stage may not

order the trial of an action on the merits to be advanced and

consolidated with the bearing af an application for preliminary

relief unless the parties have received clear and unambiguous

notice of the court’s intent to consolidate such hearings, either

before the hearing commences or at a time which will still af-

ford parties full opportunity to present their respective cases.

Because of the limited nature of a preliminary injunction, par-

ties are not required to present their entire case and ordinarily

do not, unless they have received such a notice. See generally

University of Texas v. Camenisch, 451 U.S. at 395-96. Where,

as here, a litigant has been deprived of a full opportunity to

present its case, that litigant has been denied notice and an

opportunity to be heard, in violation of the Fifth Amendment.

When a lower federal court has usurped power in such an

extraordinary manner, writs of mandamus or certiorari in this

Court provide vehicles through which such departures from

the accepted and usual course of judicial proceedings may be

corrected. Cf. Schlagenhauf v. Holder, 379 U.S. 104, 111-112

(1964); Los Angeles Brush Manufacturing Corp. v. James, 272

U.S. 701, 706 (1927) (both using the writs to review claims

that lower federal courts had exceeded powers granted them

by the Federal Rules of Civil Procedure). Just as this Court

has used writs of mandamus @@iigmggi to supervise the

conduct of lower federal courts in interpreting and enforcing

their powers under the Federal Rules of Civil Procedure, so

this Court should grant such relief in this case to supervise

the action of the appellate court in administering the Federal

Rules of Appellate Procedure, to confine the jurisdiction of

the appellate court on appeal to a review of the orders actual-

ly appealed from that are properly appealable under 28 U.S.C.

§ 1291 or § 1292, and to assure that litigants are not deprived

of their constitutional right to notice and an opportunity to be

heard before they are denied rights protected by the laws of

the United States.

22

The Importance of the Issues Improperly

Addressed Using These Truncated Procedures

The procedures used by the court of appeals in this case

were so far beyond its lawful authority that this Court should

use the writ of mandamus @@aumahemmameto control the appellate

court’s actions, even if the ultimate issues in this case were

important only to these parties. In fact, the issues decided

by the panel significantly affect the interpretation and enforce-

ment of the federal securities laws. Those statutes implement

important federal interests in protecting the millions of U.S.

citizens who make investments in securities from fraud and

in creating a prophylactic scheme of required disclosures to

enable them to make informed investment decisions. The

panel’s opinion addressed issues about the extraterritorial

reach of the disclosure provisions of the federal securities laws,

and the interplay between the anti-waiver provisions of those

laws and forum selection and choice of law clauses. These

issues are important to all U.S. citizens who provide capital

to foreign enterprises, as is the proper role of international

comity in deciding these issues. The need for this Court to

supervise the process by which the decisions are made ac-

cordingly is far greater than if only the Petitioners’ personal

interest in procedural fairness were at stake.

First, the court of appeals decided that the anti-waiver pro-

visions contained in the 1934 Act did not preclude enforce-

ment of forum s@t@étion ‘and choice of law clauses that could

send U.S. citizens who seek to enforce disclosure rights pro-

vided by the federal securities laws to a jurisdiction (such as

England) that will not impose any disclosure requirements.

Beginning with The Bremen v. Zapata Off-Shore Oil Co.,

407 U.S. 1 (1972), this Court has rendered a series of deci-

sions that accord choice of forum provisions presumptive valid-

ity, especially in the context of international transactions. See,

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

115 S. Ct. 2322 (1995); Carnival Cruise Lines v. Shute,

23

499 U.S. 585 (1991); Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985); Scherk v. Alberto-Culver

Co., 417 U.S. 506 (1974). Those same decisions have

recognized that choice of forum and law provisions may be

found unreasonable if, inter alia, their enforcement would con-

travene a strong public policy of the forum state. See Carnival

Cruise Lines, 499 U.S. at 595; The Bremen, 407 U.S. at 12-13,

15, 18. In Mitsubishi Motors, this Court noted that if ‘‘the

choice-of-forum and choice-of-law clauses operated in tandem

aS a prospective waiver of a party’s right to pursue statutory

remedies . . ., we would have little hesitation in condemning

the agreement as against public policy.’ 473 U.S. at 637, n.19,

quoted favorably in Vimar, 115 S. Ct. at 2330.

In this case, Petitioners satisfied the trial court that the

choice of forum and choice of law clauses here operate in

tandem as a prospective waiver of Petitioners’ statutory right

to disclosures as a condition of certain securities transactions,

including the R&R Plan. As Petitioners demonstrated courts

in the United Kingdom will not recognize the statutorv law

of another jurisdiction as the basis for a claim asserted in that

country or otherwise enforce foreign statutory law. To en-

force the choice clauses in this case thus means that Petitioners

have no forum available to them to hear disclosure claims

brought pursuant to the federal securities laws.

As Petitioners and the SEC argued, and the district court

agreed, as a matter of congressional command, the anti-waiver

provisions applicable to the 1933 Act, 15 U.S.C. § 77n, and

to the 1934 Act, 15 U.S.C. § 78cc(a), dictate that any con-

tractual stipulation effectively waiving compliance with the

substantive provisions of the securities laws is null and void.

See also Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 229 (1987) (noting that the decision in Scherk turned

on the circumstances of that case, where selection of arbitra-

tion would not affect the claimant’s ability to enforce statutory

rights). If the foreign forum applying its law will not even con-

sider claims to enforce U.S. securities laws, then the choice

24

clauses effectively operate as a waiver of compliance. That

some remedy other than the prerequisite disclosures may have

been available under the chosen law cannot belie that these

claimants will not have this unique federal statutory right.

Second, the court reached the unprecedented conclusion

that Congress did not intend the U.S. disclosure obligations

to reach transactions such as the R&R Plan that have such

a significant international involvement, regardless of the

number of American investors or the amount of their capital

at issue. The panel acknowledged the public policy exception

to enforcing choice laws, as well as the significance of the

federal policy of full disclosure of relevant information embodied

in the United States securities laws that replaced the tradi-

tional European doctrine of caveat emptor. See, e.g., SEC v.

Capital Gaines Research Bureau, Inc., 375 U.S. 180, 186-87

(1963). However, based on its narrow construction of the in-

tended reach of the disclosure requirements, the panel con-

cluded that even if there were no disclosure remedies in the

United Kingdom, Lloyd’s choice clauses should be enforced. !?

The panel summarily reasoned that Congress had not intend-

ed that U.S. disclosure requirements ‘‘be exported and im-

posed as governing principles on markets conducted entirely

in other countnes simply because membership in such markets

is solicited in the United States.’’ 94 F.3d at 929.

Having incorrectly decided to analyze the adequacy of remedies for

fraud in the United Kingdom in relation to Petitioners’ fraud claim, the

panel also erred in assessing the adequacy of those remedies. There are

different standards of proof and only a limited damages remedy. See Mem.

Op., App., pp. 66a-7la. Moreover, without the anti-waiver provisions of

the federal laws, Lloyd’s also could argue that Names would waive most

of the alternative claims supposedly available under British law if they ac-

cepted the R&R Plan. Jd., App., pp. 45a-46a. Whatever the merits of

the panel's assessment of the adequacy of British fraud remedies, that

determination is irrelevant to whether federal disclosure obligations intend-

ed to replace the rule of caveat emptor, compliance with which cannot lawful-

ly be waived under the laws of this country, take precedence over the

desirability of enforcing choice clauses in international agreements.

12

12

25

This broad and bold statement was premised on a

misunderstanding of the facts and a misimpression of the law. -

The parties’ briefs on Lloyd’s stay motion do not discuss

whether Congress intended that U.S. securities laws have ex-

traterritorial effect in cases such as this. The district court’s

opinion also does not discuss this issue. Yet, without benefit

of any briefs, the panel adopted an unprecedented, narrow

reading of the reach of the disclosure obligations imposed by

the U.S. securities law.

The panel must have been unaware of the statutes that con-

firm that Congress did intend to provide broad reach to the

1934 Act, even where international transactions are involv-

ed. See 15 U.S.C.§§ 781(g)(1) (broadly extending reach of the

registration requirements to the full extent of the interstate

commerce powers), 78l(g)(2) (providing a mechanism for

foreign issuers to apply to the SEC for an exemption), 13 and

78c(a)(17) (defining interstate commerce to include commerce

between any state and any foreign country). This evidence

of an express, statutory purpose to protect U.S. investors

in foreign securities, not only with respect to the prevention

of fraud, but also the requirements for disclosure, is overlooked

in the panel’s opinion.

Perhaps the absence of briefs or argument contributed to

the panel’s failure to recognize the SEC policies embodied in

its regulations governing various disclosure obligations under

the 1934 Act. In deciding when a foreign enterprise is subject

to disclosure obligations, those regulations focus on such

factors as the number of U.S. investors; the size of the for-

eign issue; and, in some cases, whether the securities

were quoted over certain quotation systems. A foreign private

issuer of securities (a term broadly defined in

'SThe record in this case included evidence that the SEC staff repeatedly

told Lloyd’s that the solicitation of U.S. citizens to invest in Lloyd’s was

a securities transaction, yet Lloyd’s never met the requirements for an

exemption from the obligations imposed by the securities laws and regula-

tions. See Mem. Op., App., pp. 103a-104a.

26

17 C.F.R. § 240.3b-4(c) as any foreign issuer other than a

foreign government) is exempt from the registration re-

quirements of § 12(g)(1) if its total assets do not exceed $10

million and its securities are not quoted in an automated inter-

dealer quotation system. 17 C.F.R. § 240.12g-1. A foreign

private issuer that has fewer than 300 holders of any class of its

securities resident in the United States is also exempt from

the registration requirements. See 17 C.F.R. § 240.12g3-2(a).

Only foreign private issuers whose securities are actually

registered are exempted from compliance with § 14(a). See

17 C.F.R. § 240.3a12-3(a).

The SEC’s focus is on the number of U.S. investors and

the size of the foreign issuer as the primary tests for whether

that issuer should be subject to disclosure requirements.

Unlike the Fourth Circuit panel, the SEC does not focus on

where the foreign enterprise conducts its underlying business

activities or the extent of foreign regulation of its business.

The SEC’s interpretation, unlike the Fourth Circuit’s, is con-

sistent with the legislative history of the 1934 Act. The Senate

Committee on Banking and Commerce, for example, noted

in its report, ‘‘Stock Exchange Practices,’’ that the commit-

tee was very concerned about the need to protect U.S. in-

vestors who purchase foreign securities, such as foreign bonds,

and about the increasing amount of the investments made by

U.S. citizens in foreign securities. S. Rep. No. 73-1455 (1934).

The panel’s opinion does not reflect that concern.

Contrary to the well-recognized principle that courts should

give great deference to administrative interpretations when

an agency has regulatory authority over matters a court must

address, see, e.g., Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 842-43 (1984), the court

of appeals did not defer to the SEC’s regulatory definition of

the narrow circumstances under which a foreign issuer of

securities is exempt from registration requirements or its posi-

tion that only private foreign issuers that have registered

should be exempt from the disclosure requirements of § 14(a)

27

and its complementary regulations. Again, the rush to judg-

ment deprived the panel of merits briefing on this issue and

apparently left if unaware of the existence of these SEC regula-

tions. Of course, the panel also ignored the SEC’s views, as

expressed in its amicus curiae brief in the district court, that

enforcement of the choice clauses in this case contravened

the federal anti-waiver provisions.

The record developed at the preliminary injunction stage

of the case showed that Lloyd’s insiders came to this coun-

try, sought out prospective Names and, using the prestige

of the centuries-old name, ‘‘Lloyd’s of London,”’ solicited them

to become members of Lloyd’s by pledging their entire net

worth to the enterprise. Prospective Names completed ap-

plication forms and financial statements in this country and sent

them to Lloyd’s in London. Although there was evidence that

a prospective Name was required to go through the formality

of a brief interview before the ROTA Committee of Lloyd’s

in London, the material events which resulted in the Name’s

membership took place in the United States. Names who were

already participants in Lloyd’s before Lloyd’s first included

the choice clauses at issue in this case, if they signed the new

form of agreement, received it through the mails in the United

States, executed it here, and then returned it to Lloyd’s, as

one of Petitioners’ witnesses testified at the preliminary in-

junction hearing. Thereafter, Lloyd’s also used the means and

instrumentalities of the United States mail to communicate fur-

ther with Names in the United States about the annual selec-

tion of the Lloyd’s syndicates to which Names will be assign-

ed and the performance of their investments and to transmit

the R&R Plan to them. Lloyd’s also sent its representatives

to this country to communicate with American Names about,

and to solicit their support for, the R&R Plan. See Mem. Op.,

App., pp. 37a-38a, 140a n.57. Most of this evidence is not

mentioned in the panel’s opinion. If the panel had reviewed

the underlying evidence following the normal appellate rules

of procedure, it could not have concluded that ‘“[t]he United

28

States nexus to the transactions involved in this case is thus

incidental and tangential.’’ 94 F.3d at 929.

The involvement of Lloyd’s in the United States and with

citizens of this country was not a sporadic or isolated incident.

Approximately 3,000 Americans, or almost 10% worldwide

of all Names, became members of Lloyd’s syndicates. Over

the years, Americans supplied hundreds of millions, if not

billions, of dollars of capital to Lloyd’s. The R&R Plan alone

sought over $250 million in new capital for Equitas from the

American Names. Until the decision of the Fourth Circuit in

this case, no other appellate court had concluded that Con-

gress did not intend that the federal securities laws should

,2xtend to an international transaction affecting as many U.S.

.esidents or having so extensive ties to this country.!* Had

“he issue been briefed on the merits in a proper appeal that

adhered to the statutes governing appellate jurisdiction and

“0 the Federal Rules of Appellate Procedure, the panel should

nave reached a different result in this case.

Third, the Fourth Circuit also opined about the role of in-

ternational comity in deciding when U.S. securities laws may

apply to a foreign enterprise that is heavily regulated in its

home country. This issue also was not briefed in the context

of Lloyd’s motion to stay. Perhpas that is why the panel’s opi-

nion overlooked a controlling prrecedent — this Court’s deci-

sion in Hartford Fire Ins. v. California Merntt Underwriting

'4None of the three appellate decisions cited by the panel, Leasco Data

Processing Equipment Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972);

Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d Cir.), cert. dented, 423

U.S. 1018 (1975); and Consolidated Gold Fields, PLC v. Minorco, S.A.,

871 F.2d 252 (2d Cir. 1989), addresses the issue of whether § 14(a) and

applicable SEC regulations, or any other disclosure provision, such as the

registration requirements of § 12(g)(1), 15 U.S.C. § 78l(g)(1), applied to

the transactions at issue in those cases. At most, these cases include dic-

ta about the possibility that there are some international transactions to

which the anti-fraud provisions reach that are not intended to be regulated

by some of the disclosure provisions.

29

Agency Management Ltd., 509 U.S. 764, 798-99 (1993). In

that case, in the very context of the Lloyd’s market and similar

arguments about the fact that Lloyd’s was and is a heavily

regulated marketplace in the United Kingdom, this Court

squarely held that comity is an issue only when there is a direct

conflict between the laws of this country and the laws of

another jurisdiction that arguably govern the same transac-

tion. In Hartford Fire Ins., various insurance syndicates at

Lloyd’s sought to insulate themselves from antitrust claims

brought by private plaintiffs under the Sherman Act, arguing

that comity prohibited application of the law of this country

because this would inject our courts into a market regulated

by British law. This Court rejected the syndicates’ position

because British law did not require the syndicates to act in

a manner prohibited by the U.S. antitrust laws; thus, there

was no conflict between the laws of the two nations and

therefore there was no comity issue posed.

No court, including the panel in (y-@ase,ddshacudentife d

any law or regulation imposed on the Lloyd’s market by British

law that forbids Lloyd’s from making the types of disclosures

required by U.S. securities laws or that authorizes Lloyd’s

to make material misrepresentations or omissions in its com-

munications to Names about their investments. The only

respect in which the application of federal securities laws would

‘“intrude’’ on the Lloyd’s market is that it would require

Lloyd’s, whenever it chooses to solicit U.S. citizens to invest

in syndicates at Lloyd’s, to make to those investors the types

of disclosures required under U.S. law and to refrain from

making any material misstatements or omissions in connection

‘SThe panel concluded that imposing U.S. securities laws on the Lloyd’s

market ‘‘would directly contravene the very rules and regulations adopted

in Britain for the creation and operation of the Lloyd’s market to which

the Names subscribed.’’ 94 F.3d at 930. However, the panel cited no

aspect of British law that precluded Lloyd’s from making to American in-

vestors the types of disclosures required under U.S. securities law or that

authorized Lloyd’s to make material misrepresentation or omissions.

30

with the sale of securities to them. Complying with those

obligations would not force Lloyd’s simultaneously to violate

British law.

Because of the truncated procedures used by the court of

appeals and the absence of merits briefs that addressed all

ultimate issues, the panel in its haste overlooked these rele-

vant statutes, regulations and precedent that should have guid-

ed its decision and would have produced a different conclusion.

The important issues that the panel addressed deserve to be

resolved on a full evidentiary record, with complete briefing and

argument and sufficient time for the appellate court to review

the factual record and to understand the legal issues. They should

not have been resolved in a truncated proceeding in which rele-

vant evidence and law were never even presented to the ap-

pellate court because the issue before the court of appeals was

the narrow question of whether it should stay a preliminary

injunction. This Court should grant the writ of mandamus @

ee to ensure that Petitioners are not

deprived of their rights by procedures that are outside the

appellate court’s jurisdictional power and that the important

substantive issues in this case receive appropriate considera-

tion in an appeal taken after the record has been completed,

rather than decided prematurely in an expedited hearing on

an emergency motion to stay a preliminary injunction. Only

through such proceedings will Petitioners have notice that the

merits of their claim are at issue and be afforded an oppor-

tunity to be heard, as required by due process.

A. Stephens Clay

Counsel of Record

Susan A. Cahoon

KILPATRICK & CODY, L.L.P.

1100 Peachtree Street,

Suite 2800

Atlanta, Georgia 30309-4530

(404) 815-6500

Counsel for Petitioners