# Opposition Brief — Haynsworth v. Lloyd's of London

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1998
- **Citation:** 523 U.S. 1072

## Text

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
sei =i ft Oo ol ae ee l
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

RI
[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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_2170%3A2. Public record. Not legal advice.