135 F.3d 1289 (9th Cir. 1998), 95-55747, Richards v. Lloyd's of London

Docket Nº:95-55747, 95-56467.
Citation:135 F.3d 1289
Party Name:, RICO Bus.Disp.Guide 9495, 98 Cal. Daily Op. Serv. 907, 98 Daily Journal D.A.R. 1207 Alan RICHARDS, et al., Plaintiffs-Appellants, v. LLOYD'S OF LONDON, an unincorporated association, et al., Defendants-Appellees. John R. NORTON, III; Doris S. Norton; Diane B. Allison; Charles G. Bentzin; F.M. Binkley; Delmar A. Brady; Samme Jo Brady; George Manin
Case Date:February 03, 1998
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1289

135 F.3d 1289 (9th Cir. 1998)

, RICO Bus.Disp.Guide 9495,

98 Cal. Daily Op. Serv. 907,

98 Daily Journal D.A.R. 1207

Alan RICHARDS, et al., Plaintiffs-Appellants,

v.

LLOYD'S OF LONDON, an unincorporated association, et al.,

Defendants-Appellees.

John R. NORTON, III; Doris S. Norton; Diane B. Allison;

Charles G. Bentzin; F.M. Binkley; Delmar A. Brady; Samme

Jo Brady; George Maning Close; Russell M. Collins; Peter

Dwares; Robert Flesvig; Donald P. Gallop; Charles A.

Gerlach, Jr.; Robert W. Gerwig; Richard C. Henry; Michael

C. Hirsh; R. William Johnston; James H. Kayian; Joanne S.

Kayian-Olooney; Suzanne Kayian; Lowell Conrad Lundell;

Judith M. Ott; H.E. Rainbolt; David L. Rosenblatt; Ray

Morse Sanderson; Claire Tillman; Warren G. Vander Voort;

Peter Beck; Harold Franz Ilg; John C. Griffin; Ted

Kosloff; Francis J. Milon; Glen R. Mogan; Melanie M.

Norton; Joseph F. Weller, Plaintiffs-Appellants,

v.

LLOYD'S OF LONDON, an unincorporated association;

CORPORATION OF LLOYD'S, aka Society of Lloyd's,

aka The Society and Council of Lloyd's,

Defendants-Appellees.

Nos. 95-55747, 95-56467.

United States Court of Appeals, Ninth Circuit

February 3, 1998

Argued and Submitted Oct. 23, 1997.

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Stephen A. Kroft, McDermott, Will & Emery, Los Angeles, California; Eugene I. Goldman, Robert E. Kohn, McDermott, Will & Emery, Washington, DC; Arlington Ray Robbins, Michael V. Pundeff, John H. Stephens, Robbins & Keehn, San Diego, California, for plaintiffs-appellants.

Phillip K. Fife, Seal Beach, California, for plaintiff-appellant E. Pomeroy Williams.

Harvey L. Pitt, Fried, Frank, Harris, Shriver & Jacobson, New York City; Dean Hansell, LeBoeuf, Lamb, Green & MacRae, Los Angeles, California; Taylor R. Briggs, Sheila H. Marshall, Mary L.B. Betts, Stephen H. Orel, LeBoeuf, Lamb, Greene & MacRae, New York City, for defendants-appellees The Corporation of Lloyd's, the Society of Lloyd's, and The Council of Lloyd's.

Richard H. Walker, Jacob H. Stillman, Eric Summergrad, John W. Avery, Securities and Exchange Commission, Washington, DC, as amicus curiae.

Eugene R. Anderson, Seth B. Schafler, Anderson Kill Olick & Oshinsky, New York City; Amy R. Bach, San Francisco, California, for amicus curiae United Policy holders.

Leonard D. Venger, Ronald B. Turovsky, Donald R. Brown, Manatt, Phelps & Phillips, LLP, Los Angeles, California; William W. Palmer, California Department of Insurance, San Francisco, California, for amicus curiae California Commissioner of Insurance.

Appeals from the United States District Court for the Southern District of California; Irma E. Gonzalez, District Judge, Presiding. D.C. Nos. CV-94-01211-IEG, CV-95-00952-IEG.

Before: HUG, Chief Judge, GOODWIN, PREGERSON, KOZINSKI, TROTT, FERNANDEZ, RYMER, KLEINFELD, HAWKINS, TASHIMA, and THOMAS, Circuit Judges.

Opinion by Judge Goodwin; Dissent by Judge Thomas.

GOODWIN, Circuit Judge:

The primary question this case presents is whether the antiwaiver provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 void choice of law and choice of forum clauses in an international transaction. The district court found that they do not. The appeal has been argued twice. Upon reconsideration en banc, the opinion published at 107 F.3d 1422 (9th Cir.1997) is withdrawn and we affirm the district court.

Background

Appellants, all citizens or residents of the United States, are more than 600 "Names" who entered into underwriting agreements. The Names sued four defendants: the Corporation of Lloyd's, the Society of Lloyd's, the Council of Lloyd's, (collectively, "Lloyd's") and Lloyd's of London, (the "unincorporated association").

Lloyd's is a market in which more than three hundred Underwriting Agencies compete for underwriting business. Pursuant to the Lloyd's Act of 1871-1982, Lloyd's oversees and regulates the competition for underwriting business in the Lloyd's market. The market does not accept premiums or insure risks. Rather, Underwriting Agencies, or syndicates, compete for the insurance business. Each Underwriting Agency is controlled by a Managing Agent who is responsible for the financial status of its agency. The Managing Agent must attract not only

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underwriting business from brokers but also the capital with which to insure the risks underwritten.

The Names provide the underwriting capital. The Names become Members of the Society of Lloyd's through a series of agreements, proof of financial means, and the deposit of an irrevocable letter of credit in favor of Lloyd's. To become a Name, one must travel to England to acknowledge the attendant risks of participating in a syndicate and sign a General Undertaking. The General Undertaking is a two page document containing choice of forum and choice of law clauses (collectively the "choice clauses"), which form the basis for this dispute. The choice clauses read:

2.1 The rights and obligations of the parties arising out of or relating to the Member's membership of, and/or underwriting of insurance business at, Lloyd's and any other matter referred to in this Undertaking shall be governed by and construed in accordance with the laws of England.

2.2 Each party hereto irrevocably agrees that the courts of England shall have exclusive jurisdiction to settle any dispute and/or controversy of whatsoever nature arising out of or relating to the Member's membership of, and/or underwriting of insurance business at, Lloyd's....

By becoming a Member, the Names obtain the right to participate in the Lloyd's Underwriting Agencies. The Names, however, do not deal directly with Lloyd's or with the Managing Agents. Instead, the Names are represented by Members' Agents who, pursuant to agreement, stand in a fiduciary relationship with their Names. Upon becoming a Name, an individual selects the syndicates in which he wishes to participate. In making this decision, the individual must rely to a great extent on the advice of his Members' Agent. The Names generally join more than one underwriting agency in order to spread their risks across different types of insurance. When a Name undertakes an underwriting obligation, that Name is responsible only for his share of an agency's losses; however, his liability is unlimited for that share.

In this case, the risk of heavy losses has materialized and the Names now seek shelter under United States securities laws and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. The Names claim that Lloyd's actively sought the investment of United States residents to fill an urgent need to build up capital. According to the Names, Lloyd's concealed information regarding the possible consequences of the risks undertaken and deliberately and disproportionately exposed the Names to massive liabilities for which sufficient underwriting capital or reinsurance was unavailable.

This appeal does not address the merits of the underlying claims. It addresses only the Names' contention that their disputes with Lloyd's should be litigated in the United States despite contract clauses binding the parties to proceed in England under English law. It also addresses whether default should have been entered against the unincorporated association.

Standard of Review

We review the district court's decision to enforce the choice clauses for abuse of discretion. Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 323 (9th Cir.1996). As we are reviewing a Rule 12(b)(3) motion decision, we need not accept the pleadings as true. Id. at 324.

Whether the securities laws void the choice clauses is a question of law that we review de novo. Pinal Creek Group v. Newmont Mining Corp., 118 F.3d 1298, 1300 (9th Cir.1997).

Discussion

The Names make three arguments for repudiating the choice clauses. They contend (1) that the antiwaiver provisions of the federal securities laws void such clauses, (2) that the choice clauses are invalid because they offend the strong public policy of preserving an investor's remedies under federal and state securities law and RICO and (3) that the choice clauses were obtained by fraud. We will address each of these in turn.

I

We analyze the validity of the choice clause under The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513

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(1972), where the Supreme Court stated that courts should enforce choice of law and choice of forum clauses in cases of "freely negotiated private international agreement[s]." Bremen, 407 U.S. at 12-13, 92 S.Ct. at 1914. 1

A

The Names dispute the application of Bremen to this case. They contend that Bremen does not apply to cases where Congress has spoken directly to the immediate issue--as they claim the antiwaiver provisions do here.

The Securities Act of 1933 (the " '33 Act") provides that:

Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.

15 U.S.C. § 77n. The 1934 Securities Exchange Act (the " '34 Act") contains a substantially similar provision. 15 U.S.C. § 78cc(a). The Names seize on these provisions and claim that they void the choice clauses in their agreement with Lloyd's.

Certainly the antiwaiver provisions are worded broadly enough to reach this case. They cover "any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter...." Indeed, this language is broad enough to reach any offer or sale of anything that could be alleged to be a security, no matter where the transaction occurs.

Nevertheless, this attempt to distinguish Bremen fails. In Bremen itself, the Supreme Court contemplated that a forum selection clause may...

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