Haynsworth v. The Corporation

• Decision Date: 29 August 1997
• Citation: 121 F.3d 956
• Court: U.S. Court of Appeals — Fifth Circuit

121 F.3d 956

Stuart G. HAYNSWORTH, et al., Plaintiffs-Appellants, v THE CORPORATION, a/k/a Lloyd's of London, a/k/a Lloyd's, a/k/a the Council of Lloyd's, a/k/a the Society of Lloyd's, a/k/a the Committee of Lloyd's, Defendant-Appellee

Charles Robert LESLIE, Plaintiff-Appellee v LLOYD'S OF LONDON, etc., et al., Defendants, 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, Defendant-Appellant.

Nos. 96-20769, 96-20805.

United States Court of Appeals, Fifth Circuit.

August 29, 1997.

Jacks C. Nickens, Clements, O'Neill, Pierce & Nickens, Houston, TX, Bradley Wayne Hoover, Houston, TX, for Plaintiffs-Appellants in 96-20769 and Plaintiff Appellee in 96-20805.

J. Clifford Gunter, III, Martin E. Loeber, Anthony C. Duenner, Bracewell & Patterson, Houston, TX, Harvey Lloyd Pitt, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Defendant-Appellee in 96-20769 and Defendant-Appellant in 96-20805.

Paul D. Flack, Clements, O'Neill, Pierce & Nickens, Houston, TX, for Charles Robert Leslie, Plaintiff-Appellee.

Richard H. Walker, John W. Avery, Securities and Exchange Commission, Washington, DC, for Securities and Exchange Commission, Amicus Curiae.

Before SMITH, BARKSDALE and BENAVIDES, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

These are consolidated appeals in suits by individual underwriters against the Corporation of Lloyd's ("Lloyd's"),1 the central administrative body of the insurance market known as Lloyd's of London. In No. 96-20769, Stuart Haynsworth and thirty-three others appeal the dismissal of their suits based on a contractual forum selection/choice-of-law clause and, in the alternative, forum non conveniens ("f.n.c."). In No. 96-20805, Lloyd's appeals the refusal to dismiss on the same grounds. Concluding that the parties are bound by the contracts they entered into, we affirm the judgment of dismissal in No. 96-20769 and reverse and render a judgment of dismissal in No. 96-20805.

I.

Some background as to the nature and structure of Lloyd's of London is a necessary introduction to the issues. Lloyd's is a 300-year-old market in which individual and corporate underwriters known as "Names" underwrite insurance. The Corporation of Lloyd's, which is also known as the Society of Lloyd's, provides the building and personnel necessary to the market's administrative operations. The Corporation is run by the Council of Lloyd's, which promulgates "Bye-laws," regulates the market, and generally controls Lloyd's administrative functions.

Lloyd's does not underwrite insurance; the Names do so by forming groups known as syndicates. Within each syndicate, participating Names underwrite for their own accounts and at their own risk. That is, as a matter of English law, Names' liability is several rather than joint, and individual Names are not responsible for the unfulfilled obligations of others. Each syndicate is managed and operated by a Managing Agent, who owes the Names a contractual duty to conduct the syndicate's affairs with reasonable care. Syndicates have no legal existence or identity apart from the Names they comprise.

Names must become members of Lloyd's in order to participate in the market. Prospective members are solicited and assisted in the process of joining by Member's Agents, whose duties to the Names are fiduciary in nature. Names must pass a means test to ensure their ability to meet their underwriting obligations, post security (typically, a letter of credit), and personally appear in London before a representative of the Council of Lloyd's to acknowledge their awareness of the various risks and requirements of membership, and in particular the fact that underwriting in the Lloyd's market subjects them to unlimited personal liability.

Participation in the market also requires the execution of a number of contracts and agreements, the most important of which is the General Undertaking, the standardized contract between Lloyd's and the individual Names. Names additionally must enter into a Member's Agent's agreement, the contract that defines the relationship between the Name and his chosen Member's Agent, and one or more Managing Agent's agreements, which define the relationships between the Name and the Managing Agents of the syndicates he wishes to join. Under the present version of Lloyd's Byelaws, each of these agreements must contain clauses designating England as the forum in which disputes are to be resolved and choosing English law as the law governing such disputes.

Prior to 1986, the General Undertaking contained a provision requiring that disputes with agents or other Names be submitted to arbitration in London. Although this provision apparently did not cover disputes between Names and Lloyd's itself, it did require arbitration of claims against virtually any other entity, including anyone "not a party to any agreement with [the Name] referring such claims to arbitration." Following Parliament's passage of the Lloyd's Act of 1982, all Names, as a condition of continuing to be Names, were required to sign a new General Undertaking (the "1986 General Undertaking"), clause 2 of which replaced the arbitration provision with language that is the focus of this case:

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 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.

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 underwrite insurance business at, Lloyd's.

Each of the plaintiffs in the appeals before us signed the 1986 General Undertaking and agreed to these forum selection/choice of law provisions, which we refer to as the "FS/COL clause."

Although underwriting at Lloyd's appears generally to have been a profitable endeavor up until the mid-1980's, at that time massive liability for pollution and asbestos-related injuries began to change the situation somewhat. According to the plaintiffs, when Lloyd's full-time members or "insiders" became aware of these risks, they concocted a sinister scheme to shift the liabilities onto unsuspecting American investors such as the plaintiffs.

In order to escape these liabilities, they claim, the insiders recruited new Names and steered them into syndicates, where they unwittingly underwrote high-risk asbestos reinsurance and toxic waste obligations, of which policies the insiders wanted no part. As a consequence of being placed in these syndicates, the plaintiffs allege, they have incurred large financial losses already and remain liable for a great deal more.

The massive excess losses sustained by Names in the late 1980's and early 1990's — by Lloyd's estimate, something in the neighborhood of $22 billion — have spawned a series of lawsuits throughout the United States. The instant appeals are but the latest chapter in this litigation, a brief summary of which is instructive to the issues before us. In Hirsch v. Vaughan,No. 89-2563, 904 F.2d 704 (5th Cir. May 31, 1990) (unpublished), an American Name sued Lloyd's and his agents, claiming common law fraud. We dismissed on the basis of f.n.c., finding the suit "aim[ed] at the heart of the unique self-regulatory mechanism within Lloyd's, which is a product of complex English legislation." Slip op. at 7.

Various Names next brought suit in the Second, Seventh, and Tenth Circuits, claiming that Lloyd's' above-described alleged conduct violated the federal securities laws. Lloyd's defended in part on the ground that the 1986 General Undertaking's FS/COL clause — the clause at issue here — requires all disputes to be litigated in England, to which the Names responded that the FS/COL clause constitutes an impermissible attempt to waive the protections of U.S. securities laws. The Second, Seventh, and Tenth Circuits rejected the Names' arguments, concluding that the securities laws' antiwaiver provisions did not bar dismissal of the suits.2. A similar contention as to the antiwaiver provisions of the Ohio securities laws was later rejected by the Sixth Circuit.[3] More recently, the Fourth Circuit joined this chorus of authority in rejecting the claim that the federal securities statutes render the FS/ COL clause void.[4] A number of courts also have rejected Names' attempts to avoid their contractual obligations by alleging that their agreement to the 1986 General Undertaking was procured by fraud, or that the FS/COL clause is unconscionable.[5]

Indeed, aside from one of the courts below in the instant case, only one court — the Ninth Circuit —...