Opposition Brief — Haynsworth v. Lloyd's of London

No. 97-1283

,

i |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

>

STUART HAYNSWORTH, et ail.,

Petitione Fas

LLOYD’S OF LONDON, et al.,

>» ]

Re spondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FIFTH CIRCUIT

BRIEF OF RESPONDENT LLOYD’S IN OPPOSITION

J. Clifford Gunter, III

BRACEWELL & PATTERSON, LLP

South Tower Pennzoil Place

711 Louisiana Street

Suite 2900

Houston, Texas 77002

(713) 223-2900

Harvey L. Pitt*

Michael H. Rauch

Debra M. Torres

FRIED, FRANK, HARRIS,

SHRIVER & JACOBSON

One New York Plaza

New York, New York 10004

(212) 859-8000

Attorneys for Respondent Lloyd's

*Counsel of Record

Ce ee

PARTIES TO THE PROCEEDING

Respondent Lloyd’s, sued herein as Lloyd’s of London,

a/k/a The Corporation of Lloyd’s, a/k/a Lloyd’s, a/k/a The

Society of Lloyd’s, a/k/a The Committee of Lloyd’s, is not a

publicly held corporation, has no parent corporation, and has no

subsidianes that are not wholly owned.

ii

TABLE OF CONTENTS

Page

PARTIES TO THE PROCEEDING. ................................000000s i

TABLE Gr CCD cacicsitennastinincecgbuiccdccnciasinien il

ny 8 Gs OF. RR ee IV

OPPOSITION TO PETITION FOR

PY 4 2 § | RFR o ER ee eh Ue l

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Pereianetl TE ssiesesincisscntssnsiiainontencadeanesiceniatigiadalainan 2

pn) , LEDER ONS IRENE RI 5

REASONS FOR DENYING THE PETITION ..................... 1]

I. THE FIFTH CIRCUIT PROPERLY

HELD THAT THE CHOICE CLAUSE

COULD NOT BE AVOIDED MERELY

BY ALLEGING CLAIMS UNDER

STATUTES WITH ANTI-WAIVER

pt | ENN Par ere ae. OTN: She: ous

A. The Fifth Circuit Properly Applied

Scherk to the Federal Securities

1. The Choice Clause Is a Truly

International Agreement ..................-::.:::se 15

2. The Choice Clause Is Enforceable

Without Determining or Assuming-

That the Transactions at Issue Are

Subject to the Federal Securities Laws.............. 17

B. The Fifth Circuit Properly Applied

Scherk to the State Statutory Claims....................... 22

C. Petitioners Have Adequate Remedies

for Their Claims in the English Courts..................-. 23

Il. THE FIFTH CIRCUIT PROPERLY

HELD THAT THE CHOICE CLAUSE

WAS NOT PROCURED BY FRAUD ....................-:0 24

A. The Fifth Circuit Properly

Applied Prima Paint .................. SEEN fe ie cer 25

B. The Fifth Circuit’s Application

of Prima Paint Is Consistent

iV

TABLE OF AUTHORITIES

Cases Page(s)

Accelerated Christian Educ., Inc. v. Oracle Corp..,

925 S.W.2d 66 (Tex. App. 1996, no writ).......... 22 n.19

Alberto-Culver Co. v. Scherk,

484 F.2d 611 (7th Cir. 1973),

rev'd, 417 U.S. 506 (1974)... 16 n.13, 17

Allen v. Lloyd’s of London,

94 F.3d 923 (4th Cir. 1996),

mandamus denied,

eg See fs. | ere 1n.1,8n.9, 23

Bonny v. Society of Lloyd’s,

3 F.3d 156 (7th Cir. 1993), cert. denied,

Fe Se tiie iciccie da akivictns passim

Campaniello Imports, Ltd. v. Saporiti Italia $.p.A..

Be re I, I sa secs nsnesensedcncco cent 26

Carnival Cruise Lines, Inc. v. Shute,

ee od lcs antisacedes 28

C.B.S. Employees Fed. Credit Union v.

Donaldson, Lufkin & Jenrette,

FEE Fe CPO. BPFD «000-02 0nccccrecssscseecces 27 n.22

Gau Shan Co. v. Bankers Trust Co.,

SIO © A RIP COU, BFR) un. 5.s00sacsesincccnsncconpnevace 22

wee rabet ie en

Cases Page(s)

Haynsworth v. Corporation of Lloyd’s,

121 F.3d 956 (Sth Cir. 1997)

(cited herein as “Pet. App. 1a” et seq.) ..........-.-.-. passim

Haynsworth v. Lloyd’s of London,

933 F. Supp. 1315 (S.D. Tex. 1996)

(cited herein as “Pet. App. 107a” et seq.),

aff'd sub nom. Haynsworth v.

Corporation of Lloyd’s,

121 F.3d 956 (5th Cir. 1997).......... 8, 8n.7, 170.14, 23

Hirsch v. Oakeley Vaughan Underwriting Ltd.,

No. 89-2563 (5th Cir. May 31, 1990),

cert. denied, 498 U.S. 981 (1990).............:- eee 14

Hoffman v. Burroughs Corp..,

571 F. Supp. 545 (N.D. Tex. 1982) ...........---.- 23 n.19

Leslie v. Lloyd’s of London,

No. H-90-1907, 1995 WL 661090 (S.D. Tex. Aug.

25, 1995) (cited herein as “Pet. App. 28a” et seq.),

rev’d sub nom. Haynsworth v. Corporation of

Lloyd’s, 121 F.3d 956 (Sth Cir. NET veluissnchskgbiisress 6

Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc.,

BTS US. GEG CIDE) vssecccninccscsercccsssensszsceresenees 11, 19

Moseley v. Electronic & Missile Facilities, Inc.,

DE TES. Dr Ce scans stn vereswicennsascsnnene 26, 26n.21

M/S Bremen v. Zapata Off-Shore Co.,

BOT EB. Ceci biicnessecnsnccnvnccerncssneremetninioeia passim

vi

Cases Page(s)

Parklane Hosiery Co. v. Shore,

Sr I rons oo rave ecbctscleaicnctvssasseasomeaneel 23

Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

Fe ac Bi iiniceeatncctsatdasvscislnd Wiientienek . passim

Reidel’s Inc. v. General Elec. Co.,

Ce Le, | eae 20 n.17

Richards v. Lloyd’s of London,

No. 94-1211-IEG (POR), 1995 WL 465687

(S.D. Cal. May 1, 1995), rev’d in part, 107 F.3d

1422 (9th Cir. 1997), district court judgment aff d,

Nos. 95-55747, 95-56467, 1998 WL 39231

(9th Cir. Feb. 3, 1998) (en banc)......................... passim

Riley v. Kingsley Underwriting Agencies, Ltd.,

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

cert. denied, 506 U.S. 1021 (1992)........00000000. passim

Roby v. Corporation of Lloyd’s,

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

cert. denied, 510 U.S. 945 (1993)....................00.. passim

Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989) .............0..... 18 n.15

Scherk v. Alberto-Culver Co.,

EF Oe a iicdieadiy bbc acae passim

Shearson/American Express v. McMahon,

SES UD. LAU GUO E osscsececstsuseriskeessscsines 11, 18, 19 n.16

SOD) SAP. +e

Page(s)

Cases

Shell v. R.W. Sturge, Ltd.,

55 F.3d 1227 (6th Cir. 1995).............. 1 n.1, 20, 22, 24

Society of Lloyd’s v. Clementson,

[1995] LRLR 307 (C.A. Nov. 10, 1994)

(LEXIS, Enggen Library, Cases File).................00 14

Tufts v. Corporation of Lloyd’s,

128 F.3d 793 (2d Cir. 1997) ..........cccceceeeeseeeseees 12, 25

Tufts v. Corporation of Lloyd's,

981 F. Supp. 808

(S.D.N.Y. 1996), aff'd per curiam,

128 F.3d 793 (2d Cir. 1997) ..........:ccccceceeteeseesseeeeees 28

Vimar Seguros y Reaseguros. S.A. v.

M/V Sky Reefer, 515 U.S. 528 (1995)....11, 20 n.18, 25

Wilko v. Swan,

346 U.S. 427 (1953)...........cccscsssscecsssreeeesenecssnsesensres 17

Wydel Assocs. v. Thermasol. Ltd.,

452 F. Supp. 739 (W.D. Tex. ant ies 23 n.19

Statutes

D ULG.C.. § Dan. .ccessecsssesscsssessossescsnssssncssvsensonsonnesnsnesseseoners 25

QULS.C. § 10.0.0... cee cteteesseseeeeneeeesenesssentenssneneeneeneenses 26

15 U.S.C. § T8j(D) 0... eeeeseeeeeeeeeeeneeeeeeeseeeeeeeteenenecen 5

Viii

Statutes Page(s)

Tex. Bus. & Com. Code Ann. § 17.41

SNE ND cisponcisinticcpressavciseidiOtessscosecsvdtesac 5

Tex. Rev. Civ. Stat. Ann. art. 581-1

(West Supp. 1997)... ooc.. Fe RR SF See 7

Rules

WN Ws Ws BONNE s coincisnidyciosheictdaoh css unas ee 6

A ne ee ee 6

5 F et a I ss uicladheiseaeidc anand en mCbee Cos 5

et ee ee ae es

CES AT hilt cle AS AL CLD el

OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

Lloyd’s respectfully submits this opposition to the

petition for a writ of certiorari (the “Petition,” cited herein as

“Pet.””) seeking review of a judgment of the United States Court of

Appeals for the Fifth Circuit that requires Petitioners to

adjudicate their claims against Lloyd’s in the English courts,

pursuant to English law, as they contractually committed to do.

STATEMENT OF THE CASE

The Petition presents two straightforward questions, each

of which has already been definitively resolved by prior precedent

of this Court. The first question is whether, as the Court of

Appeals for the Fifth Circuit found, forum selection and choice of

law clauses contained in international agreements between the

Petitioners and Respondent Lloyd’s (the “Choice Clause”) are

enforceable when claims under the federal or state securities laws,

or other state statutes with “anti-waiver” provisions, are asserted

in the U.S. courts. Scherk v. Alberto-Culver Co., 417 U.S. 506

(1974), resolved this question in the affirmative, holding that the

anti-waiver provisions of the federal securities laws do not bar

enforcement of a forum agreement made in the context of a truly

international transaction. Likewise, the anti-waiver provisions of

the Texas securities and consumer fraud statutes do not bar

enforcement of international forum selection agreements. The

seven United States Courts of Appeals that have considered the

enforceability of the Choice Clause—the Second, Fourth, Fifth,

Sixth, Seventh, Ninth, and Tenth Circuits—have, following

Scherk, unanimously held that the Choice Clause is enforceable

as to both federal and/or state statutory claims.’

Richards v. Lloyd’s of London, Nos. 95-55747, 95-56467, 1998 WL

39231 (9th Cir. Feb. 3, 1998) (en banc), Allen v. Lloyd’s of London,

94 F.3d 923 (4th Cir. 1996), mandamus denied, 117 S. Ct. 2497

(1997), Shell v. R.W. Sturge, Ltd., 55 F.3d 1227 (6th Cir. 1995),

Footnote continued

2

The second question is whether the Fifth Circuit applied

the correct legal standard in finding that Petitioners had failed to

demonstrate fraud going specifically to the Choice Clause itself,

as opposed to fraud in the inducement of the underlying

agreement. This Court’s decisions in M/S Bremen v. Zapata

Off-Shore Co., 407 U.S. 1 (1972), Scherk, and Prima Paint Corp.

v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), clearly

establish that the Fifth Circuit properly rejected Petitioners’

assertion that generalized allegations of fraud in the inducement

of the underlying agreements between them and Lloyd’s are

sufficient to invalidate the Choice Clause as the product of fraud.

Factual Background

Respondent Lloyd’s is an English entity incorporated by,

and granted regulatory powers pursuant to, Acts of the British

Parliament. See Appendix for Petitioners (“Pet. App.”) 108a.

Specifically, pursuant to Lloyd’s Act 1982, Lloyd’s, through its

governing body the Council of Lloyd’s, is charged with the

authority to regulate an English imsurance market, and the

participants in that market, who reside in approximately eighty

nations. Lloyd’s regulatory functions must be exercised in

accordance with the Lloyd’s Act 1982 and the Insurance

Companies Act 1982, both English statutes. Lloyd’s is further

Footnote continued from previous page

3 F.3d 156 (7th Cir. 1993), cert

Bonny v. Society of Lioyd’s,

denied, 510 U.S. 1113 (1994), Roby v. Corporation of Lloyd’s, 996

F.2d 1353 (2d Cir.), cert. denied, 510 U.S. 945 (1993); Riley v.

Kingsley Underwriting Agencies, Lid.,

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

cert. denied, 506 U.S. 1021 (1992).

. As Petitioners concede, al] but three of them (Pet. 2] n9) are

collaterally estopped from relitigating this issue by their

participation in Richards, in which the Ninth Circuit rejected the

same allegations of fraud in the inducement of the Choice Clause.

1998 WL 39231 at *7-8.

2 eEaEEEEEeEmEeeEeEeEeEeEeEeEeEeEee

3

subject to direct supervision by Her Majesty’s Treasury.

Lioyd’s is not an insurer, and does not underwrite or insure risks,

accept premiums, or share in the profits or losses of those who

underwrite risks in the Lloyd’s market. Pet. App. 3a, 108a.

Petitioners are Texas residents who are underwriting

memvers of Lloyd’s, known as “Names.” Names are individuals

(and, since 1994, corporations) who each act as insurers in the

Lloyd’s market: they, and not Lloyd’s, receive premiums from

policyholders, and they, not Lloyd’s, are directly liable to

policyholders for the insurance risks they have underwritten. As

required by English law, individual Names, such as Petitioners,

are personally liable on the risks they insure to the full extent of

their personal wealth. Pet. App. 3a~-4a. However, under English

law (Lloyd’s Act 1982 § 8(1)), a Name’s liability is several, not

joint; a Name bears no responsibility for the underwriting

obligations of other Names, and has no right to share in the

underwriting profits of other Names. Pet. App. 3a-4a.

unlimited nature of their personal liability. Pet. App. 4a.

. Lloyd’s was subject to the supervision of the British Department of

Trade and Industry until January 5, 1998, when these supervisory

functions were transferred to the Treasury.

than the [forum selection and choice of law] clause.” Pet. 6.

Consistent with their agreement to subject themselves to

English insurance statutes and Lloyd’s regulatory authority,

Petitioners, like all Names worldwide, agreed in the General

Undertaking to adjudicate any disputes they might have relating to

their membership of or underwriting in the Lioyd’s market in

English courts pursuant to English law. Specifically, paragraph

2.1 of the General Undertaking (Resp. App. R2) states:

The mghts and obligations of the parties arising

out of or relating to the Member’s membership

of, and/or underwriting of insurance business at,

Lloyd’s and any other matter referred to in this

Undertaking shall be governed by and construed

in accordance with the laws of England.

Paragraph 2.2 (id_) states:

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

5

or relating to the Member’s membership of,

and/or underwriting of insurance business at,

Lloyd’s and that accordingly any suit, action or

proceeding (together in this Clause 2 referred to

as “Proceedings”) arising out of or relating to

such matters shall be brought in such courts and,

to this end, each party hereto irrevocably agrees

to submit to the jurisdiction of the courts of

England and irrevocably waives any objection

which it may have now or hereafter to (a) any

Proceedings being brought in any such court as Is

referred to in this Clause 2 and (b) any claim that

any such Proceedings have been brought in an

inconvenient forum and further irrevocably

agrees that a judgment in any Proceedings

brought in the English courts shall be conclusive

and binding upon each party and may be

enforced in the courts of any other jurisdiction.

Petitioners are wrong in their assertion that the Choice

Clause contained in the 1986 General Undertaking was the first

forum agreement between Names and Lloyd’s. Pet. 6. As the

Fifth Circuit correctly noted, even before the 1986 General

Undertaking was required, Names had signed other forms of

undertaking with Lloyd’s requiring adjudication in England of

disputes between Names and other Names, and between Names

and their agents. Pet. App. 14a-15a. Petitioners do not point to

Procedural History

The Leslie Case. Charles Robert Leslie commenced an

action against Lloyd’s on June 20, 1990. He asserted claims

under section 10(b) of the Securities Exchange Act of 1934 (15

USC. §78j(b)) and Rule 10b-5 thereunder (17 CFR

§ 240.10b-5), as well as pendent claims under Texas law for

fraud. breach of fiduciary duty, and violations of the Consumer

Protection Deceptive Trade Practices Act (the “DTPA”), Tex.

6

Bus. & Com. Code Ann. § 17.41 et seq. (West Supp. 1997).*

Lloyd’s moved to dismiss the case pursuant to Federal

Rule of Civil Procedure 12(b)(6) on the grounds that the Choice

Clause and the doctrine of forum non conveniens required Leslie

to adjudicate his dispute with Lloyd’s in the English courts, and

for failure to state a claim upon which relief could be granted.

Lloyd’s also sought dismissal pursuant to Federal Rule of Civil

Procedure 12(b){1) for lack of subject matter jurisdiction. By

order dated September 4, 1991, the district court (Rainey, J.)

affirmed, over Lloyd’s objections, the recommendations of a

Magistrate Judge that Lloyd’s motion be denied in all respects.

Lloyd’s sought reconsideration of the district court’s order.

After granting Lloyd’s motion for reconsideration, the

district court affirmed its original order. Pet. App. 28a-30a. The

Leslie district court made clear that in deciding the dismissal

motion it assumed the truth of Leslie’s allegations. Pet. App. 35a

nn.15-16.° Petitioners thus repeatedly misstate the record by

referring to factual “findings” made by the Leslie court in

declining to enforce the Choice Clause based on “evidentiary

hearings.” Pet. 3. When the district court affirmed denial of

Lioyd’s motion to dismiss, it also granted Lloyd’s motion for

leave to file an interlocutory appeal. On September 4, 1996, the

. Leslie also named his Members’ Agent, R.W. Sturge & Co., as a

defendant but dismissed Sturge from the action “for reasons of

litigation strategy.” Pet. App. 30a n.2.

’ The only “evidentiary hearing” (Pet. 3) held in Leslie occurred in

connection with a preliminary injunction application made by Leslie

while Lloyd’s motion for reconsideration of its motion to dismiss

was pending. Leslie sought an injunction that would have prevented

Lloyd’s from drawing upon a letter of credit that he arranged to be

issued to Lloyd’s to secure his underwriting obligations to insureds.

The district court denied his request for an injunction, and the Fifth

Circuit subsequently affirmed that denial. Pet. App. 93a.

7

Fifth Circuit certified for appeal the district court’s order denying

enforcement of the Choice Clause and denying dismissal based on

grounds of forum non conveniens.° No other issues presented to

the district court were certified for appeal.

The Haynsworth Case. On January 26, 1996, seventy-

seven Names filed suit against Lloyd’s in the United States

District Court for the Southern District of Texas, alleging fraud,

breach of fiduciary duty, and violations of the DTPA and the

Texas Securities Act (Tex. Rev. Civ. Stat. Ann. art. 581-1 et seq.

(West Supp. 1997)). Fifty-three of the Haynsworth plaintiffs had

previously challenged enforcement of the Choice Clause

unsuccessfully in other federal actions against Lloyd’s. The

Haynsworth plaintiffs did not assert federal securities law claims.

Lloyd’s moved to dismiss the Haynsworth action on the

grounds that the Choice Clause and the doctrine of forum non

conveniens required plaintiffs to adjudicate their claims against

Lloyd’s in English courts in accordance with English law.

Lloyd’s also asserted that the Haynsworth plaintiffs who had

already unsuccessfully challenged enforcement of the Choice

Clause in prior suits against Lloyd’s were estopped from

relitigating that issue.

On July 15, 1996, the Haynsworth district court (Hughes,

J.) held that the Choice Clause was enforceable, and thus

dismissed the action. The district court specifically rejected

Petitioners’ contention that the Choice Clause had been procured

by fraud and that enforcement of the Choice Clause would violate

a strong public policy of Texas embodied in either the Texas

’ The Fifth Circuit had denied without prejudice Lloyd’s first petition

for leave to file an interlocutory appeal because the district court had

not identified which of the issues it had decided were controlling

questions of law apt for interlocutory appeal. The district court

tly entered an amended order identifying the controlling

issues of law certified for appeal.

securities laws or the DTPA.’ Pet. App. 116a-118a. The district

court alternatively held that the doctrine of forum non conveniens

also required dismissal of the action. Id. at 119a-120a.

The Appeal. On April 15, 1997, the Fifth Circuit granted

Lloyd’s motion to consolidate the appeals in Leslie and

Haynsworth* On April 29, the court of appeals heard oral

argument from the parties and from the Securities and Exchange

Commission (“SEC”), which had obtained the court’s permission

to participate in the hearing as an amicus curiae, opposing

enforcement of the Choice Clause. The SEC also submitted to the

Fifth Circuit a copy of the amicus brief it had previously filed in a

Ninth Circuit appeal from a California district court’s decision

enforcing the Choice Clause. Richards v. Lloyd’s of London, No.

94-1211-IEG (POR), 1995 WL 465687 (S.D. Cal. May 1, 1995).

Shortly before argument in this case, a divided Ninth Circuit

panel had reversed in part the Richards district court, holding that

the anti-waiver provisions of the federal securities laws barred

enforcement of the Choice Clause simply because the federal

securities laws were alleged to apply. Richards v. Lloyd’s of

London, 107 F.3d 1422 (9th Cir. 1997) (“RichardsI”). The

SEC, along with Petitioners, urged the Fifth Circuit to follow

Richards I.° On February 3, 1998, an en banc panel of the Ninth

litigated the enforceability of the Choice Clause in other actions

were barred from doing so again. Pet. App. 1 18a.

Forty-three of the original appellants withdrew their appeal.

: The SEC had previously filed its Richards amicus brief in the Allen

case, in which the Fourth Circuit enforced the Choice Clause. Allen

vy. Lioyd’s of London, 94 F.3d 923 (4th Cir. 1996), mandamus

denied, 117 S. Ct. 2497 (1997). The SEC opposed the grant of

rehearing en banc im Richards, and argued before the en banc pane!

of the Ninth Circuit that reviewed, and ultimately withdrew,

Ruchards |

u

Circuit withdrew Richards I, and issued an opinion holding the

Choice Clause to be enforceable. Nos. 95-55747, 95-56467,

1998 WL 39231 (9th Cir. Feb. 3, 1998) (en banc) (“Richards

Ir”).

Decision Below. On August 29, 1997, a unanimous

panel of the U.S. Court of Appeals for the Fifth Circuit (Smith,

Barksdale, & Benavides, JJ.) held that the Choice Clause was

enforceable, thereby reversing the Leslie district court judgment

and affirming the Haynsworth district court judgment. Finding

the agreements at issue to be truly international, the Fifth Circuit

held that this Court’s decisions in Bremen and Scherk were

controlling, and that the Petitioners had failed to meet their heavy

burden of demonstrating that enforcement of the Choice Clause

would be “unreasonable,” as those decisions require. Pet. App.

10a.

Specifically, the Fifth Circuit held that Petitioners had

failed to establish that enforcement of the Choice Clause would be

contrary to the public policies embodied in the anti-waiver

provisions of the federal and Texas securities laws, and the

DTPA. Noting that this Court in Scherk had declined to reach or

express any view as to whether the Exchange Act applied to

plaintiff's claims in that case, the Fifth Circuit did not express

any view as to the merits of Petitioners’ claims, including whether

any aspect of a Name’s involvement in the Lloyd’s market

constitutes a “security” under either the federal or state securities

laws, or a consumer transaction under the DTPA. Pet. App.

18a.° The Fifth Circuit concluded, based on Scherk, that neither

the anti-waiver provisions of the federal or state securities laws,

od Lloyd’s vigorously disputes any contention that either the federal or

state securities laws or the DTPA have any application to a Name’s

participation in the Lloyd’s market, including the notion that any

aspect of a Name’s involvement in the Lloyd’s market constitutes a

security or a consumer transaction.

10

nor the anti-waiver provisions of the DTPA, constituted a bar to

enforcement of the Choice Clause merely because claims under

those statutes had been asserted. The Fifth Circuit recognized

that any other conclusion would “‘exalt[] the primacy of United

States law over the laws of other countries,” in direct

contravention of Scherk and Bremen. Pet. App. 19a (quoting

Scherk, 417 U.S. at 517 n.11).

The Fifth Circuit further concluded that, under Bremen

and Scherk, an international forum agreement, such as the Choice

Clause, cannot be circumvented simply because certain statutory

remedies are unavailable in the chosen forum. Pet. App. 19a. In

that regard, the Fifth Circuit noted the fairness of the English

legal system and determined that the remedies available to

Petitioners in England were “adequate to protect their interests

and the policies behind the statutes at issue.” Id. 25a.

The Fifth Circuit also held that Petitioners had not shown

that they had been fraudulently induced into agreeing to litigate

disputes with Lloyd’s in England, under English law, _— .

Oe ee ee Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395 (1967). The Fifth Circuit

properly applied Scherk and Prima Paint to require Petitioners to

demonstrate fraud going directly to the procurement of the Choice

Clause in order to establish the unreasonableness of enforcing it,

and determined that Petitioners had failed, as a matter of law, to

do so. Pet. App. 12a-15a."

Petitioners sought rehearing and/or rehearing en banc on

September 11, 1997. On October 13, 1997, the Fifth Circuit

” Because the Choice Clause was enforced, the Fifth Circuit found it

unnecessary to address whether the action should also be dismissed

pursuant to the doctrine of forum non conveniens, as the Haynsworth

district court had held. Pet. App. 7a & n.7.

11

denied that request. Pet. App. 127a. On January 12, 1998,

Petitioners submitted the Petition to this Court.

REASONS FOR DENYING THE PETITION

There is no compelling reason for this Court to grant

review of the Fifth Circuit’s decision. In enforcing the Choice

Clause, the Fifth Circuit faithfully applied controlling precedent

of this Court. Specifically, in Scherk, this Court rejected the very

same contention advanced by Petitioner Leslie here: that a

commitment contained in an international agreement to adjudicate

claims relating to the agreement in a foreign tribunal may be

vitiated simply by alleging that the federal securities laws apply to

his claims. Scherk applies with equal—if not greater—force to

the state law claims asserted by the Petitioners. The Fifth Circuit

properly found that Scherk was controlling as to the contention

that the enforcement of the Choice Clause was barred by the anti-

waiver provisions of the federal and state statutes alleged to apply

here.

Petitioners also contend that the Fifth Circuit’s ruling was

inconsistent with dictum in Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987), Vimar Seguros y Reaseguros,

S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995), and Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614

(1985). There is no such inconsistency. In these decisions, this

Court enforced forum selection agreements in situations in which

such agreements had previously been deemed unenforceable.

Indeed, since Bremen, this Court has never declined to enforce a

forum selection agreement made in the context of an international

transaction.

Nor is there any split of authority between the circuits.

The Fifth Circuit’s decision is fully consistent with the decisions

of the six other courts of appeals that have considered the

enforceability of the Choice Clause. See supra note | (citing

Choice Clause cases). Each of these courts explicitly rejected the

contention that the anti-waiver provisions and/or general policies

12

of the federal and/or state securities laws permit Names to avoid

their “solemn promise” to litigate in England (see Scherk, 417

U.S. at 519) simply by alleging that their participation in the

Lloyd’s market involved the sale of a security. These cases are

indistinguishable from the case at bar.

Petitioners heavily rely on the Richards I opinion, holding

the Choice Clause unenforceable as to federal securities law

claims, in seeking review of the Fifth Circuit’s ruling in this case,

noting the “conflict” between Richards I and the ruling below.

That conflict no longer exists. The Ninth Circuit en banc panel

has since withdrawn Richards I and has held, as the Fifth Circuit

did, that the Choice Clause is enforceable when the federal

securities laws are alleged to apply. Richards II, 1998 WL 39231

at *1.

There is also no compelling basis for this Court to review

the Fifth Circuit’s rejection of Petitioners’ claim that their assent

to the Choice Clause was induced by fraud. Scherk and Prima

Paint make clear that Petitioners’ allegations of fraud are

insufficient, as a matter of law, to invalidate the Choice Clause.

The Fifth Circuit’s decision in this regard is consistent with that

of the four other courts of appeals that have addressed, and

rejected, identical allegations of fraud in the procurement of the

Choice Clause. Richards I], 1998 WL 39231 at *7-8; Tufts v.

Corporation of Lloyd’s, 128 F.3d 793 (2d Cir. 1997), affg per

curiam 981 F. Supp. 808, 813-14 (S.D.N.Y. 1996); Bonny, 3

F.3d at 159-60; Riley, 969 F.2d at 960.

This Court has declined—in Riley, Roby, Bonny, and

Allen—to review decisions enforcing the Choice Clause each of

the four times such review was sought. It should do so again.

13

I. THE FIFTH CIRCUIT PROPERLY HELD THAT

THE CHOICE CLAUSE COULD NOT BE

AVOIDED MERELY BY ALLEGING CLAIMS

UNDER STATUTES WITH ANTI-WAIVER

PROVISIONS

The Fifth Circuit properly recognized that “the basic

framework” for analyzing whether the Choice Clause is

enforceable is “the strong presumption of enforceability

established by Bremen and Scherk.” Pet. App. 18a. In M/S

Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), this Court

firmly established that forum selection clauses contained in

international agreements are entitled to a strong presumption of

enforceability. Accordingly, such clauses must be “specifically

[enforced] unless the party resisting enforcement could clearly

show that enforcement would be unreasonable and unjust, or that

the clause was invalid for such reasons as fraud or overreaching.”

Id. at 15. Just two years after Bremen was decided, this Court in

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), held that the

principles set forth in Bremen also governed the enforceability of

a “truly international” forum agreement when the plaintiff alleges

that the federal securities laws apply to the dispute. Id. at 509,

514-15.

The strong presumption of enforceability derives not only

from a general respect for contract but from the specific needs of

international commerce. As the Court stated in Bremen:

We cannot have trade and commerce in world

markets and international waters exclusively on

our terms, governed by our laws, and resolved in

our courts.

407 U.S. at 9. Likewise in Scherk, the Court recognized that

[a] contractual provision specifying in advance

the forum in which disputes shall be litigated and

the law to be applied is...an almost

14

indispensable precondition to achievement of the

orderliness and predictability essential to any

international business transaction.

417 US. at 516.

The presumption of enforceability accorded to an

international forum agreement is even stronger in this case than in

an ordinary commercial agreement. By executing the General

Undertaking, Petitioners agreed to abide by English statutes, and

by rules and regulations promulgated by Lloyd’s, as regards their

underwriting business in an English insurance market. The

Choice Clause is therefore critical to Lloyd’s ability to regulate

the marketplace—which includes Names from approximately

eighty different countries—effectively and consistently. As an

English court has ruled:

The clear and simple purpose of this agreement,

aptly called an undertaking, was to ensure that on

his becoming a Name [defendant] became subject

to the regulatory regime of Lloyd’s. The clauses

governing choice of law and venue were ancillary

to that object.

Society of Lloyd’s v. Clementson, [1995] LRLR 307 (C.A. Nov.

10, 1994) (LEXIS, Enggen Library, Cases File).

Claims by Names arising out of their underwriting or

membership in Lloyd’s “‘aim[]} at the heart of the unique self-

regulatory mechanism within Lloyd’s, which is a product of

complex English legislation.’”” Pet. App. 5a-6a (quoting Hirsch v.

Oakeley Vaughan Underwriting Ltd., No. 89-2563, slip op. at 7

(5th Cir. May 31, 1990)). It would be completely anomalous to

allow U.S. courts under U.S. law to adjudicate disputes between

U.S. Names and Lloyd’s when the regulatory relationship at the

heart of the dispute was created by, and is governed by, English

law. Such a result would ultimately lead to Names, solely by

15

vagary of residence, having different nghts and obligations to

policyholders and Lloyd’s.

A. The Fifth Circuit Properly Applied

Scherk to the Federal Securities Claim

Petitioner Leslie’s claim that section 29(a) of the

Exchange Act, i.e., the “anti-waiver” provision, makes the

Bremen presumption of enforceability inapplicable was precisely

the question considered and answered in Scherk.'? Specifically,

this Court in Scherk rejected the argument that section 29(a)

precluded dismissal of claims asserted under section 10(b) of the

Exchange Act in favor of the contractually chosen forum in Paris.

417 US. at 509, 514-15. As the Fifth Circuit properly

recognized, Scherk is “directly on point.” Pet. App. 24a.

See also Richards II, 1998 WL 39231 at *5 (“We follow our six

sister circuits that ruled to enforce the choice clause . . . because

we apply Scherk.”).

None of Leslie’s attempts to distinguish Scherk has any

merit.

1. The Choice Clause Is a Truly

International Agreement _

Leslie tries to avoid application of Scherk by arguing that

his relationship with Lloyd’s does not involve “the type of

‘international business transaction’ contemplated in Scherk.” Pet.

16. The Fifth Circuit aptly noted that “[t]he most charitable

adjective with which to describe [this] argument is

“disingenuous,” because it is

12

Of the 28 Petitioners, only Leslie has alleged violations of the

Exchange Act, despite the Petition’s repeated references to

“Petitioners” substantive Exchange Act rights.” See, e.g., Pet. 11.

16

sufficiently obvious that an agreement is

“international” when it involves an American

Name’s underwriting international insurance

policies in an English market pooling resources

with other Names from over eighty countries and

all the while explicitly agreeing to be bound by

English law.

Pet. App. 20a. See also Richards I], 1998 WL 39231 at *4

(“Entering into the Lloyd’s market . . . is plainly an international

transaction.”); Bonny, 3 F.3d at 159 n.9 (“There is no question

that the transaction involved here is truly international.”); Roby,

996 F.2d at 1362-63; Riley, 969 F.2d at 957 (“[The] agreement is

truly international”).

Leslie’s attempt to obscure the international nature of his

agreements with Lloyd’s by focusing only on alleged US.

conduct is futile. Pet. 16-18. In Bremen, this Court reversed an

appellate decision holding that a forum selection agreement

requiring litigation in England should not be enforced because

U.S. contacts predominated over any English contacts. 407 U.S.

at 7-8. The facts underlying Scherk likewise demonstrate that the

relevant inquiry is not which country has the most contacts, but

whether the transaction “touches two or more countries, each with

its own set of substantive laws and conflicts of laws rules.” 417

US. at 516."

- In Scherk, the plaintiff was an American company and the principal

negotiations occurred in the United States, but both the defendant,

and the businesses sold to the plaintiff in the disputed transaction,

were Europe-based. Alberto-Culver Co. v. Scherk, 484 F.2d 611,

613-14 (7th Cir. 1973), rev’d, 417 U.S. 506 (1974).

- 17

2. The Choice Clause Is Enforceable Without

Determining or Assuming That the

Transactions at Issue Are Subject to the

Federal Securities Laws

Leslie also attempts to distinguish Scherk by erroneously

asserting that this Court’s holding in that case was premised on

its conclusion that the federal securities laws would be appiied by

the arbitrators in Paris. Pet. 13. Based on this misreading of

Scherk, Leslie argues that the Fifth Circuit was required either to

assume the truth of his allegation that the federal securities laws

applied to his participation in the Lloyd’s market or to give

dispositive weight to the Leslie district court’s ruling that his

complaint stated a claim under the Exchange Act. Pet. 10-11.

The Fifth Circuit, relying on Scherk, properly rejected this

contention. '“

In enforcing the international forum agreement in Scherk,

this Court did “not reach, or imply any opinion as to, the question

whether the acquisition of Scherk’s business was a security

transaction.” 417 U.S. 506, 514 n.8 (1974). In so holding, this

Court rejected the reasoning of the Seventh Circuit, which had

held that the question of enforceability “turns on whether the

transaction here in issue involves ‘securities’ within the purview

of section 10(b). . . .” Alberto-Culver, 484 F.2d at 615. After

concluding that securities were involved, the Seventh Circuit

found Bremen inapplicable and instead found Wilko v. Swan, 346

U.S. 427 (1953)—which had barred enforcement of an arbitration

= The Haynsworth district court, like this Court in Scherk; did not

decide or assume the merits of Petitioners’ claim that the Texas

securities and consumer fraud statutes have any application here.

Pet. App. 11la-114a (describing, but not passing judgment upon,

plaintiffs’ various purported claims). The Leslie district court’s

interlocutory ruling on the motion to dismiss for failure to state a

claim under the Exchange Act—even if it were relevant, which it is

not—does not apply to any Petitioner other than Leslie.

18

clause in a domestic securities case—to be dispositive. Alberto-

Culver, 484 F.2d at 615.

of the agreement in Scherk “involve[d] considerations and policies

significantly different than those found controlling in Wilko.”

417 U.S. at 515. In particular, the Court noted that:

In Wilko . . . there was no question but that the

laws of the United States generally, and the

federal securities laws in particular, would

govern disputes arising out of the stock-purchase

agreement.... In this case, by contrast... i

the absence of the arbitration provision

considerable uncertainty existed at the time of the

agreement, and still exists, concerning the law

applicable to the resolution of disputes arising

out of the contract.

Id. at 515-16.'° It was precisely because the transaction in

Scherk “touch[ed] two or more countries” that the Court declined

to decide or assume whether the federal securities laws applied to

the transaction at issue. Id. at 516. Consequently, under Scherk,

the anti-waiver provisions of the federal securities laws (or any

other statute) may not be given dispositive weight in determining

the enforceability of an international forum clause.

Leslie also contends that Shearson/American Express v.

McMahon, 482 U.S. 220 (1987), bars enforcement of a forum

selection clause if the chosen forum will not apply the federal

securities laws to the dispute. Pet. 13-14. According to

Petitioners, McMahon allows “procedural rights” to a judicial

forum to be waived only when it is certain that the “substantive

1S

Wilko has since been overruled. Rodriguez de Quijas _v.

Shearson/American Express, Inc., 490 U.S. 477, 485 (1989).

ee ee ee ee ee

19

rights” purportedly guaranteed by the securities laws will be

applied in the designated forum. Id. at 12-15. McMahon,

however, did not involve an international agreement but rather a

purely domestic transaction to which the federal securities laws

indisputably applied. _ McMahon, 482 U.S. at 228-29.

Consequently, McMahon provides no support for the argument

that international forum clauses may only be enforced when the

chosen forum is certain to apply American statutory rights, for

the simple reason that this question—which had already been

answered in the negative by Scherk—was not before the

McMahon Court.’*

Petitioners’ reliance on dicta in Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), is equally

misplaced. Mitsubishi enforced an international arbitration clause

in a case involving anti-trust counterclaims, overruling a line of

lower court decisions holding anti-trust claims to be non-

arbitrable. Id. at-640. The parties had agreed that, despite a

provision requiring the Japanese arbitrators to apply Swiss law,

the anti-trust counterclaims would also be submitted for

arbitration. The following footnote was therefore pure dictum:

[I]n the event the choice of forum and choice of

law clauses operated in tandem as a prospective

waiver of a party’s might to pursue statutory

remedies for anti-trust violations we would have

” Petitioners cite language in McMahon that they claim limits Scherk

to cases in which a plaintiff's rights under the federal securities

laws will be enforced in the chosen forum. Pet. 13 (citing

McMahon, 482 U.S. at 229). Scherk itself is inconsistent with this

contention. In Scherk, a choice of law clause requiring the Parisian

arbitrators to apply Illinois law to any disputes (417 U.S. at 508) did

not assure that the arbitrators would apply the federal securities

laws, or even consider the Exchange Act claims, as the dissent

pointedly noted. Id. at 532-33 & n.11 (Douglas, J., dissenting).

ie

little hesitation in condemning the agreement as

against public policy.

Id. at 637 n.19.'’ The Fifth Circuit properly recognized that this

dictum “is limited to the antitrust context” even if read broadly.

Pet. App. 22a. Like the Fifth Circuit, the other courts of appeal

that have considered whether the Mitsubishi dictum precludes

enforcement of the Choice Clause have held that it does not.

Richards II, 1998 WL 39231 at *6; Bonny, 3 F.3d at 160; Shell,

55 F.3d at 1230-31; Roby, 996 F.2d at 1364-65; Riley, 969 F.2d

at 959-60. Petitioners’ attempt to apply the Mitsubishi dictum to

the Choice Clause flies in the face of Scherk, in which this Court

recognized, in the context of the claimed application of the anti-

waiver provisions of the federal securities laws, that

[a] contractual provision specifying in advance the

forum in which disputes shall be litigated and the law

to_be applied is ... an almost indispensable

precondition to achievement of the orderliness and

predictability essential to any international business

transaction.

417 U.S. at 516 (emphasis supplied)."*

17

The cases cited in the Mitsubishi footnote to support the

“prospective waiver” dictum do not involve forum selection or

choice of law clauses but instead involve general releases of any

future claims. See, e.g., Reidel’s Inc. v. General Elec. Co., 498 F.2d

95 (Sth Cir. 1974). By executing the Choice Clause, however,

Petitioners have not released any claims and have not been left

without remedies for alleged fraud. See infra § I.C, at p. 23.

Petitioners also rely on dictum in Vimar Seguros y Reaseguros, S.A.

v. M/V Sky Reefer, 515 U.S. 528 (1995), to support their contention

that the Choice Clause constitutes an impermissible waiver of

statutory rights. Pet. 7-9. This reliance is misplaced. In Vimar, this

Court overruled a long line of lower court precedents that had

voided forum agreements under the Carriage of Goods by Sea Act

Footnote continued

21

Petitioners’ argument is equally inconsistent with

Bremen. In Bremen, the contract at issue did not contain an

express choice of law provision, but this Court recognized that the—

choice of an English forum was essentially a choice of English

law as well. 407 U.S. at 13 n.15. The Court thus found that it

was “reasonable to conclude that the forum clause was also an

effort to obtain certainty as to the applicable substantive law.”

Id. Although the Court explicitly recognized that application of

English law would be outcome determinative and yield results

different from those that would obtain under U.S. law (id. at 8 &

n.8), it nonetheless enforced the forum agreement.

In short, United States public policy does not preclude

parties to an international transaction from resolving in advance

any uncertainty as to potential conflicts of law in favor of

application of foreign law. As the Fifth Circuit aptly noted:

It defies reason to suggest that a plaintiff may

circumvent forum selection . . . clauses merely by

stating claims under laws not recognized by the

forum selected in the agreement. A plaintiff would

simply have to allege violations of his country’s tort

law or his country’s statutory law or his country’s

property. law in order to render nugatory any forum

selection clause that implicitly or explicitly required

the application of the law of another jurisdiction. We

Footnote continued from previous page

(“COGSA”), and enforced forum selection and choice of law

provisions requiring adjudication in Japan. Because COGSA is an

implementation of an international treaty intended to create uniform

rights and obligations amongst the signatory nations, Vimar neither

displaces nor modifies Bremen or Scherk. As the Fifth Circuit

recognized, “COGSA, unlike the American securities statutes or the

Texas laws ... [embodies] an international scheme the very nature

of which would be frustrated by permitting parties to opt out of it.”

Pet. App. 23a.

22

refuse to allow a party’s solemn promise to be

defeated by artful pleading.

Pet. App. 24a-25a (quoting Roby, 996 F.2d at 1360); see also

Richards II, 1998 WL 39231 at *4 (same).

B. The Fifth Circuit Properly Applied Scherk to the

State Statutory Claims

As noted above, the Fifth Circuit also properly rejected

Petitioners’ claims that the “anti-waiver” provisions of the Texas

“Blue Sky” statute and the DTPA authorized them to litigate in

Texas in violation of their solemn agreement to litigate

exclusively in England. The Fifth Circuit correctly held that the

principles set forth in Bremen and Scherk apply in diversity

actions in which the plaintiffs assert claims under state statutes.

Pet. App. 8a-9a. Consequently, Scherk controls the enforceability

of the Choice Clause as to the Petitioners’ Texas statutory claims.

Indeed, this Court’s decision in Scherk applies with even greater

force to the Texas statutory provisions Petitioners invoke. See

Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349, 1358 (6th

Cir. 1992) (“When weighed against the concerns of international

comuty, the public policies of a state deserve less weight than the ;

public policies of the nation.”); Shell, 55 F.3d at 1231 (holding

that plaintiffs had not proved that the public policy underlying

Ohio securities laws outweighed the policy behind “supporting the

integrity of international agreements” like the Choice Clause).

While Petitioners argue that the “Texas courts have consistently

upheld the legislature’s edict” by enforcing the anti-waiver

provisions (Pet. 10), that assertion is both irrelevant in a diversity

case and wrong as a matter of Texas law. The Texas courts have |

—— held Soro Ri sere henge 2 a — - future :

5 vn Coma io m7 20 weit) (engllatis supiiied). The

Texas federal courts have reached the same conclusion in cases

Footnote continued

a

23

Furthermore, all but three of the Petitioners are barred by

collateral estoppel from challenging the enforceability of the

Choice Clause as to their Texas Blue Sky claims because they

previously raised state securities law claims in the Richards

litigation that were dismissed on the basis of the Choice Clause.

Pet. 21 n.9. Although the Fifth Circuit found it unnecessary to

address the collateral estoppel issue in light of its ruling on the

Choice Clause (Pet. App. 7a n.7, 119a-123a), collateral estoppel

provides an independent basis for dismissal of most of Petitioners’

claims. Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979).

c. Petitioners Have Adequate Remedies for Their

Plains in the Enetish C

The Fifth Circuit correctly determined that the “remedies

in England are adequate to protect [Petitioners’] interests and the

policies behind the statutes at issue.” Pet. App. 25a. The six

other appellate courts that have enforced the Choice Clause

reached the same conclusion, recognizing that Names have

significant remedies against Lloyd’s for fraud in the English

courts.” Richards II, 1998 WL 39231 at *7; Allen, 94 F.3d at

Footnote continued from previous page

involving DTPA claims. Hoffman v. Burroughs Corp., 571 F. Supp.

545 (N.D. Tex. 1982), Wydel _V 1, Ltd., 452 F.

Supp. 739 (W.D. Tex. 1979). Petitioners conspicuously fail to cite

any of these cases, and the Texas cases they do cite (Pet. 9-10) have

absolutely nothing to do with the enforcement of forum selection

agreements.

Petitioners misstate Lloyd’s amenability to suit in England under

English law. Pet. 5. Lloyd’s has no immunity under English law

from claims that it acted “in bad faith.” Lloyd’s Act 1982 §14;

Richards I, 1998 WL 39231 at *7. Names may also sue their

Members’ and Managing Agents for breach of fiduciary duty and

negligence. Richards II, 1998 WL 39231 at *7 &n.6.

24

929; Shell, 55 F.3d at 1231; Bonny, 3 F.3d at 161; Roby, 996

F.24 at 1365-66; Riley, 969 F.2d at 958.

The Fifth Circuit properly rejected the contention that any

specific differences between the remedies availiable to Names in

England and the remedies that the federal securities statutes might

provide prevent enforcement of the Choice Clause:

We refuse to accept the notion . . . that the sheer

scope of U.S. securities law automatically

renders that of other countries inferior or should

provide American investors a means to escape

their contractual obligations when they begin to

prove too costly.

Pet. App. 24a. Any other conclusion would be inconsistent with

both Bremen and with Scherk, as it would “reflect a ‘parochial

concept that all disputes must be resolved under our laws and in

our courts... .”” Scherk, 417 U.S. at 519 (citing Bremen, 407

US. at 9).

II. THE FIFTH CIRCUIT PROPERLY HELD THAT

THE CHOICE CLAUSE WAS NOT PROCURED

BY FRAUD

Three of the Petitioners also attack the Choice Clause as

the product of fraud. See supra note 2. In Prima Paint Corp. v.

Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and Scherk,

this Court held that forum agreements are unenforceable on

grounds of “fraud and overreaching” only “if the inclusion of that

clause in the contract was the product of fraud or coercion.’

Scherk, 417 U.S. at 519 n.14 (emphasis in orginal) (citing Pima

Paint, 388 U.S. at 404 & n.11). As this Court recognized in

Scherk, the exception set forth in Bremen to enforcement of forum

agreements for fraud or overreaching “does not mean that anytime

a dispute arising out of a transaction is based upon an allegation

of fraud, as in this case, the clause is unenforceable.” Scherk,

417 US. at 519 n.14.

25

The Fifth Circuit properly applied Prima Paint and

Scherk in rejecting Petitioners’ generalized allegations of fraud as

grounds to invalidate the Choice Clause. Pet. App. 1la-17a.

Like the Fifth Circuit, the Second, Ninth, and Tenth Circuits have

rejected, based on Prima Paint and Scherk, identical claims of

fraud in the inducement of the Choice Clause. See Richards II,

1998 WL 39231 at *7-8; Tufts v. Corporation of Lloyd’s, 128

F.3d 793 (2d Cir. 1997), aff’'g per curiam 981 F. Supp. 808, 813

(S.D.N.Y. 1996); Riley, 969 F.2d at 960. Cf. Bonny, 3 F.3d at

160 n.10.

A. The Fifth Circuit Properly Applied Prima Paint

Petitioners contend that the Fifth Circuit erred in applying

Prima Paint to this case because Prima Paint applies only to

arbitration clauses governed by the Federal Arbitration Act

(“FAA”), not to judicial forum selection agreements like the

Choice Clause. Pet. 22. This argument is specious because, as

Prima Paint itself makes clear, the FAA makes arbitration

agreements as enforceable as—but no more enforceable

than—other contractual provisions, including judicial forum

selection agreements. 388 U.S. at 404 n.12 (citing 9 U.S.C. § 2).

In Scherk, this Court extended to arbitration clauses the Bremen

criteria for assessing the enforceability of judicial forum

agreements, holding that arbitration clauses are simply “a

specialized kind of forum-selection clause.” Scherk, 417 U.S. at

519 & n.14. See also Vimar, 515 US. at 534 (“(Floreign

arbitration clauses are but a subset of foreign forum selection

clauses in general.”). The appellate courts have uniformly held

that Prima Paint’s specificity requirement applies to agreements

to litigate in judicial as well as arbitral fora. See, e.g., Richards

Il, 1998 WL 39231 at *8; Riley, 969 F.2d at 960.

Petitioners further suggest that Prima Paint should not

apply to judicial forum clauses because courts do not retain

jurisdiction, as they do in the arbitral context, to ensure that the

fraud claims have been properly addressed. Pet. 22. While it is

true that a court may have an opportunity to review an arbitral

26

award prior to its confirmation, a court’s ability to vacate the

award is limited by the FAA to narrowly prescribed instances,

such as when the award itself was procured by fraud, when there

is evident partiality or misconduct by the arbitrators, or when the

arbitrators refused to hear material evidence. 9 U.S.C. § 10.

This narrow scope of review does not permit de novo review of

the merits of the arbitrator’s award or of any finding concerning a

claim of fraud in the inducement of the contract. Pet. 22.

B. The Fifth Circuit’s Application of Prima Paint Is

Cons: ith Mosel

Contrary to Petitioners’ contention, the Fifth Circuit’s

pe ager writen eyes ae ara

earlier decision in Mose 0 issile h

Inc., 374 U.S. 167 (1963). Mossley dows not hold that

generalized assertions that a forum selection agreement was part

of a broader fraud concerning the underlying contract suffice to

invalidate the forum agreement. Rather, in Moseley, in which

Petitioners had alleged that both the arbitration agreement and the

underlying agreement had been procured by fraud, the Court

simply held that the allegations relating to the arbitration

agreement should be determined by the district court in advance

of an assessment of any other issues in that case. Id. at 171.”

Thus, Prima Paint’s rule that a court may only assess whether the

making of the forum agreement was fraudulent is entirely

consistent with this Court’s decision in Moseley, and this Court in

Prima Paint so recognized. Prima Paint, 388 U.S. at 404 n.12.

See also Richards I], 1998 WL 39231 at *8 (rejecting

—— of Moseley that _ Petitioners advance here);

3 alia S.p.A., 117 F.3d 655,

668 (2d Cir. 1997) (holding that, under Prima Paint and Moseley,

Notably, in Moseley, no party had sought to enforce the arbitration

clause, and the Court was not ruling on the merits of the allegations

of fraud in the inducement. 374 U.S. at 168.

Wee Be @ OBO EA Per e+ eo -O eeeeeee S

27

a party seeking to avoid a forum selection clause must prove

“some nexus between the alleged fraud or misrepresentation and

the arbitration clause in particular” which may not be established

by simply alleging that the “clause was a part of the overall

scheme to defraud.”).”

Unlike the district court in Moseley, the Fifth Circuit has

already found that, as a matter of law, Petitioners made no

allegations of fraud directed to the Choice Clause. Pet. App. 12a-

16a. It specifically rejected the contention that Lloyd’s alleged

characterization of the 1986 General Undertaking as containing

“few variations of substance” from prior agreements signed by

Names (Pet. 6-7) was a fraudulent misrepresentation specific to

the Choice Clause.” Pet. App. 14a-l5a. Likewise, the Fifth

Circuit rejected Petitioners’ claim that Lloyd’s alleged failure to

affirmatively explain the legal import of the Choice Clause

establishes fraud specific to the Choice Clause:

7 Petitioners contend that C.B.S. Employees Fed. Credit Union v.

Donaldson, Lufkin & Jenrette, 912 F.2d 1563 (6th Cir. 1990), is

inconsistent with the Fifth Circuit’s ruling and creates a split of

appellate authority as to the proper application of Prima Paint.

Pet. 23. Petitioners are wrong. C.B.S. is consistent both with Prima

Paint’s specificity requirement and with the decisions of other

appellate courts interpreting that requirement. The Sixth Circuit in

C.BS. merely held that when “the plaintiff affirmatively pleads that

the contract and the arbitration agreement included therein were

procured through fraud, the court should determine whether the

arbitration clause was used to further the fraudulent scheme.” 912

F.2d at 1568. The Sixth Circuit thus remanded the case to the

district court for a determination as to whether plaintiffs could

substantiate any claims of fraud specific to the arbitration clause.

The Sixth Circuit did not hold that allegations that a forum clause

was part of a fraudulent scheme sufficed, by themselves, to

invalidate the clause.

” Moreover, as both the Leslie district court and the Fifth Circuit

noted, this statement was allegedly made by Petitioners’ Members’

Agent, not by Lloyd’s. Pet. App. 14a n.14.

28

[tjhe plaintiffs were sophisticated parties

contracting voluntarily; it is not for us to impose

a duty upon one party to counsel the other as to

the risks and benefits of a contract. . . . The duty

was the plaintiffs’ to read the plain terms of the

agreement, not Lloyd’s to lecture them about it.

Pet. App. 15a. See also Tufts v. Corporation of Lloyd’s, 981 F.

Supp. at 813 (S.D.N.Y. 1996) (“Lloyd’s was not in a fiduciary

relationship with Plaintiffs and had no duty to explain the effect

of the choice clauses to them.”), aff'd per curiam, 128 F.3d 793

(2d Cir. 1997); Bonny, 3 F.3d at 156 n.10 (“Nothing excuses the

plaintiffs for not being aware of the substantive provisions of

English law that the forum selection clause incorporates into their

agreement”).

Tae Fifth Circuit also rejected the claim that the 1986

General Undertaking was a “take-it-or-leave-it” offer that renders

the Choice Clause the product of “overreaching.” Pet. 21. Like

Petitioners’ claims of fraudulent inducement, the facts relied upon

to support their allegations of overreaching are in no way specific

to the Choice Clause, but relate to the circumstances surrounding

the contract as a whole, as the Fifth Circuit properly-found. Pet.

App. 16a. Even if these allegations were directed specifically at

the Choice Clause, the Fifth Circuit properly recognized that

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), in

which this Court enforced a forum selection clause contained in

an agreement that had not been subject to negotiation; would

nevertheless require it to reject Petitioners’ claim of overreaching.

Id.

29

CONCLUSION

For all the foregoing reasons, this Court should deny the

Petition for a writ of certiorari.

Dated: March 9, 1998

Respectfully submitted,

J. Clifford Gunter, III Harvey L. Pitt*

BRACEWELL & PATTERSON, LLP Michael H. Rauch

South Tower Pennzoil Place Debra M. Torres

711 Louisiana Street FRIED, FRANK, HARRIS,

Suite 2900 SHRIVER & JACOBSON

Houston, Texas 77002 One New York Plaza

(713) 223-2900 New York, New York 10004

(212) 859-8000

Attorneys for Respondent

*Counsel of Record

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TABLE OF CONTENTS

PAGE

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General Undertakimg of Petitioner Charles Robert

EEE EE Rl

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[SEAL]

GENERAL UNDERTAKING

This Undertaking is made the day of

19___ between:

(1) The Society of Lloyd’s incorporated by Lloyd’s Act

(2)

1871 (“Lloyd’s” (which expression shall include any

officer or employee of Lloyd’s, any person in or to

whom whether individually or collectively any powers

or functions are vested or delegated by or pursuant to

Lloyd’s Acts 1871-1982)) and

Charles Robert Leslie (the “Member”) on behalf of him-

self and his legal and personal representatives and suc-

cessors.

WHEREAS:

(A)

(B)

(C)

(D)

The Lloyd’s Acts 1871-1982 conferred powers on the

Council of Lloyd’s (the “Council”) to make byelaws for

the purposes provided in such Acts.

Pursuant thereto the Council duly made the Membership

Byelaw (No. 9 of 1984) on 12th November, 1984 (the

“Byelaw”) prescribing inter alia requirements to be sat-

isfied or complied with as a continuing condition of

membership of, and of underwriting insurance business

at, Lloyd’s.

The Member is or, as the case may be, is to become a

member of Lloyd’s.

Pursuant to the provisions of the Byelaw and in con-

sideration of the Member’s admission to membership

of, and/or of underwriting insurance business at,

Lloyd’s or, as the case may be, continuing membership

of, and/or of underwriting insurance at, Lloyd’s, the

Member and Lloyd’s consider that it is in their respec-

tive interests to become parties to this Undertaking.

R2

Now THEREFORE IT IS AGREED as follows:

-

Nm

ty

Throughout the period of his membership of Lloyd’s the

Member shall comply with the provisions of Lloyd’s

Acts 1871-1982, any subordinate legislation made or to

be made thereunder and any direction given or provision

or requirement made or imposed by the Council or any

person(s) or body acting on its behalf pursuant to such

legislative authority and shall become a party to, and

perform and observe all the terms and provisions of, any

agreements or other instruments as may be prescribed

and notified to the Member or his underwriting agent by

or under the authority of the Council.

The rights and obligations of the parties arising out of

or relating to the Member’s membership of, and/or under-

writing of insurance business at, Lloyd’s and any other

matter referred to in this Undertaking shall be governed

by and construed in accordance with the laws of England.

Each party hereto irrevocably agrees that the courts

of England shall have exclusive jurisdiction to settle any

dispute and/or controversy of whatsoever nature aris-

ing out of or relating to the Member’s membership of,

and/or underwriting of insurance business at, Lloyd’s

and that accordingly any suit, action or proceeding

(together in this Clause 2 referred to as “Proceedings”)

arising out of or relating to such matters shall be brought

in such courts and, to this end, each party hereto irre-

vocably agrees to submit to the jurisdiction of the courts

of England and irrevocably waives any objection which

it may have now or hereafter to (a) any Proceedings

being brought in any such court as is referred to in this

Clause 2 and (b) any claim that any such Proceedings

have been brought in an inconvenient forum and further

irrevocably agrees that a judgment in any Proceedings

brought in the English courts shall be conclusive and

binding upon each party and may be enforced in the

courts of any other jurisdiction.

R3

2.3. The choice of law and jurisdiction referred to in this

Clause 2 shall continue in full force and effect in respect

of any dispute and/or controversy of whatsoever nature

arising out of or relating to any of the matters referred to

in this Undertaking notwithstanding that the Member

ceases, for any reason, to be a Member of, or to under-

write insurance business at, Lloyd’s.

3. If any term of this Undertaking shall to any extent be

invalid or unenforceable, the remainder of the Under-

taking shall not be affected thereby and each term of this

Undertaking shall be valid and be enforceable to the

fullest extent permitted by law and a substitute provision

shall be negotiated by the parties hereto to preserve as

nearly as possible the original intent of this Undertaking.

IN WITNESS whereby the parties hereto have caused this

Undertaking to be duly executed on the date first written

above.

SOCIETY OF LLOYD'S

By:

Authorised Signatory [SEAL]

By:

Member's Signature

/s/ CHARLES ROBERT LESLIE