Lipcon v. Underwriters at Lloyd's, London, 97-5144

• Decision Date: 05 August 1998
• Docket Number: No. 97-5144,97-5144
• Citation: 148 F.3d 1285
• Parties: Fed. Sec. L. Rep. P 90,257, 11 Fla. L. Weekly Fed. C 1670 Irmgard LIPCON; Mitchell Lipcon; Charles R. Lipcon; Barbara Lipcon, Plaintiffs-Appellants, v. UNDERWRITERS AT LLOYD'S, LONDON, a.k.a. Corporation of Lloyd's, a.k.a. Society of Lloyd's, a.k.a. Lloyd's of London, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1285

148 F.3d 1285

Fed. Sec. L. Rep. P 90,257, 11 Fla. L. Weekly Fed. C 1670

Irmgard LIPCON; Mitchell Lipcon; Charles R. Lipcon Barbara Lipcon, Plaintiffs-Appellants, v. UNDERWRITERS AT LLOYD'S, LONDON, a.k.a. Corporation of Lloyd's, a.k.a. Society of Lloyd's, a.k.a. Lloyd's of London, Defendants-Appellees.

No. 97-5144.

United States Court of Appeals Eleventh Circuit.

Aug. 5, 1998.

Sharon L. Wolfe, Cooper & Wolfe, Miami, FL, for Plaintiffs-Appellants.

Jon W. Zeder, Adorno & Zeder, P.A., Miami, FL, Harvey L. Pitt, Debra Torres, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Defendants-Appellees.

Eric Summergrad, Leslie Smith, Washington, DC, for Amicus Curiae Securities & Exchange Commission.

Appeal from the United States District Court for the Southern District of Florida.

Before HATCHETT, Chief Judge, BLACK, Circuit Judge, and KRAVITCH, Senior Circuit Judge.

KRAVITCH, Senior Circuit Judge:

In this appeal, we are confronted with the important question of whether the anti-waiver provisions of the United States securities laws preclude enforcement of certain choice-of-law and forum-selection clauses ("choice clauses") in international agreements. Although we recognize that it is a close question, we follow the weight of circuit authority and conclude that the choice clauses are enforceable despite the anti-waiver provisions. In addition, we conclude that the agreements in this case satisfy scrutiny for fundamental fairness and do not contravene public policy. Finally, we conclude that Irmgard, Mitchell, Charles, and Barbara Lipcon (collectively, "appellants" or "the Lipcons") all are bound by their agreement with Underwriters at Lloyd's London ("Lloyd's"). Accordingly, we affirm the district court's decision to dismiss the Lipcons' complaint against Lloyd's.

I.

Lloyd's is a large insurance market in which more than three hundred Underwriting Agencies compete for underwriting business. Pursuant to the British Lloyd's Acts of 1871 and 1982, Lloyd's oversees and regulates the competition for underwriting business in the insurance market; according to the amicus curiae brief of the British Government, Lloyd's "has statutory powers granted by Parliament to regulate the affairs of the international insurance market in London...." ¹ Lloyd's itself, however, does not accept premiums or insure risks. Instead, Underwriting Agencies, which act as 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 underwriting business from brokers but also the capital with which to insure the risks that are underwritten.

Managing Agents recruit "Names" to provide the underwriting capital. A Name becomes a Member 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. By becoming a Member, a Name obtains 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, act as fiduciaries for the Names. Upon becoming a Name, an individual selects the underwriting agencies in which he wishes to participate. The Names generally join more than one underwriting agency in order to spread their risks across different types of insurance. In large part because of the experience of the Members' Agents, Names generally rely on the advice of their Members' Agents in deciding in which syndicates to invest. Selecting well is of the utmost financial importance because a Name is responsible for his share of an agency's losses.

In addition to providing the indicia of financial security mentioned above, to become a Name one must travel to England to acknowledge the attendant risks of participating in a syndicate by signing a standard-form "General Undertaking." The General Undertaking is a two-page document containing the choice clauses that form the basis for this dispute. The choice clauses provide:

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.

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 and that accordingly any suit, action or proceeding ... arising out of or relating to such matters shall be brought in such courts.... ²

Irmgard and Mitchell Lipcon are Names who entered into underwriting agreements, and Charles and Barbara Lipcon, who signed letters of credit to provide collateral for the Names, are their spouses. Irmgard and Mitchell first became Names in 1983 and 1984, respectively, and in 1986 signed a revised General Undertaking that contains the choice clauses set out above.

After it became clear that the Names would be responsible for massive losses for asbestos and pollution claims, appellants brought suit in United States District Court for the Southern District of Florida alleging that: (1) Lloyd's actively sought investors from the United States to fill an urgent need to build up capital; (2) concealed information regarding the possible consequences of the risks undertaken; and (3) deliberately and disproportionately exposed the Names to massive liabilities for which sufficient underwriting capital or reinsurance was not available. The Lipcons stated claims under the Securities Act of 1933, §§ 5, 12(1), & 15, 15 U.S.C. §§ 77e, 77l, & 77o; the Securities Exchange Act of 1934, §§ 10(b) & 20, 15 U.S.C. §§ 78j & 78t; the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968; and various provisions of Florida law. The district court granted the motion to dismiss brought by Lloyd's, finding that the choice clauses are enforceable and preclude litigation arising out of the Lipcons' agreement with Lloyd's in United States courts. In addition, the district court concluded that Charles and Barbara Lipcon, who signed letters of credit in favor of Lloyd's but never entered into any agreement with Lloyd's, are bound by the choice clauses.

As in numerous similar cases in the courts of appeals involving these choice clauses, "[t]his 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." Richards v. Lloyd's of London, 135 F.3d 1289, 1292 (9th Cir.1998).

II.

As a preliminary matter, we note that some uncertainty exists as to both the appropriate vehicle for motions to dismiss on the basis of forum-selection clauses and the proper standard of review for district court decisions granting such motions to dismiss. See Haynsworth v. Lloyd's of London, 121 F.3d 956, 961 & n.8 (5th Cir.1997) (citing cases); 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1352 (2d ed. Supp. 1998). In the case before us, Lloyd's styled its motion as a Rule 12(b)(3) motion to dismiss for improper venue. See Fed.R.Civ.P. 12(b)(3).

The Ninth Circuit has treated such motions as motions brought pursuant to Fed.R.Civ.P. 12(b)(3) to dismiss for lack of venue, see Richards v. Lloyd's of London, 135 F.3d 1289, 1292 (9th Cir.1998); cf. Hugel v. Corporation of Lloyd's, 999 F.2d 206, 207 (7th Cir.1993) (affirming district court's grant of defendant's Rule 12(b)(3) motion to dismiss for improper venue in case involving forum-selection clause); Commerce Consultants Int'l v. Vetrerie Riunite, 867 F.2d 697, 698 (D.C.Cir.1989) (same), and has reviewed district court decisions to enforce forum-selection and choice-of-law clauses for abuse of discretion, see id.; accord Sun World Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068 & n.3 (8th Cir.1986). The Second Circuit, on the other hand, has treated such motions as motions to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). See AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d 148, 153 & n.8 (2d Cir.1984). Finally, several circuits have avoided resolving the issue of the appropriate form of pleading for a motion to dismiss based upon choice clauses and instead have held simply that "the enforceability of a forum selection clause is a question of law reviewable de novo." Haynsworth, 121 F.3d at 961; see id. (electing not to reach "the considerably more enigmatic question of whether motions to dismiss on the basis of forum selection clauses are properly brought as motions under Fed.R.Civ.P. 12(b)(1), 12(b)(3), or 12(b)(6), or 28 U.S.C. § 1406(a)"); Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1229 (6th Cir.1995); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th Cir.1992) (noting that "[a] motion to dismiss based on a forum selection clause frequently is analyzed as a motion to dismiss for improper venue under Fed.R.Civ.P. 12(b)(3)," but failing to resolve issue).

In our view, motions to dismiss based upon forum-selection clauses ordinarily are not properly brought pursuant to Rule 12(b)(1), which permits motions to dismiss for lack of subject matter jurisdiction, because the basis upon which the defendants seek dismissal--namely, that the agreement of the parties prohibits the plaintiff from bringing suit in the particular forum--is unrelated to the actual basis of federal subject matter jurisdiction--namely, federal question jurisdiction or diversity of citizenship, as the case may be. In the case before us, appellants stated...