96 Civ. 5158 (SAS)


960 F. Supp. 724; 1997 U.S. Dist. LEXIS 3633

March 26, 1997, Decided

March 28, 1997, FILED

DISPOSITION: [**1] Plaintiffs' motion to certify October 23, 1996 Order for interlocutory appeal denied. Defendants' motion to dismiss granted with leave to amend.


- Appearances -

For Plaintiffs: Mark D. Lebow, Coudert Brothers, New York, N.Y.

For Defendants: William A. Meehan, Mendes % Mount, L.L.P., New York, N.Y. Lawrence W. Pollack, LeBoeuf, Lamb, Greene, & MacRae, L.L.P., New York, N.Y. Philip Walsh, Wilson, Elser, Moskowitz, Edelman & Dicker, New York, N.Y.

JUDGES: Shira A. Scheindlin, U.S.D.J.

OPINIONBY: Shira A. Scheindlin



Plaintiffs filed the instant action for common law fraud and violations of Article 22-A of the New York General Business Law n1 in New York state court on June 26, 1996. Defendant Lloyd's n2 removed the action to this court on July 9, 1996 pursuant to 12 U.S.C. ? 632, 9 U.S.C. ?? 203 and 205, 28 U.S.C. ? 1331, 28 U.S.C. ?? 1441(a) and (d), and 28 U.S.C. ? 1426. Plaintiff moved to remand to state court, and I denied this motion in an Opinion and Order dated October 23, 1996. See Stamm v. Barclays Bank of New York et al., 1996 U.S. Dist. LEXIS 15781, No. 96 Civ. 5158, 1996 WL 614087 (S.D.N.Y. 1996). Plaintiffs now move to certify the October[**2] 23, 1996 Order for appeal pursuant to 28 U.S.C. ? 1292(b). Defendants also move to dismiss plaintiffs' action pursuant to, inter alia, Rules 9(b) and 12(b)(3) of the Federal Rules of Civil Procedure and the doctrine of forum non conveniens. For the reasons that follow, plaintiffs' motion is denied and defendants' motion is granted.

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n1 N.Y. General Business Law ?? 349 et seq. (McKinney 1988).

n2 "Lloyd's" refers here to defendants Corporation of Lloyd's, Society and Council of Lloyd's, Committee of Lloyd's, and Lloyd's of London.

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I. Factual Background

A. Brief Description of Lloyd's and "Names"

Lloyd's of London ("Lloyd's") is a market for insurance underwriting. The Council and Committee of Lloyd's promulgate regulations that govern this insurance underwriting market, and enforce compliance with those regulations. Syndicates are entities that compete [*726] with each other for underwriting business, and are each managed by a Managing Agent. Each Managing Agent is liable for its own syndicate's[**3] financial well-being, and is responsible for raising capital and underwriting business. In turn, each syndicate's capital comes from Names, who are represented in their dealings with Lloyd's by Member's Agents. Names fall into two categories: Working Names, who are insiders employed by Lloyd's or the Managing and Member's Agents and External Names, who are passive investors. See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1357-8 (2d Cir.) (describing Lloyd's as "a market somewhat analogous to the New York Stock Exchange" and detailing its structure), cert. denied, 510 U.S. 945, 126 L. Ed. 2d 333, 114 S. Ct. 385 (1993). See also In re Lloyd's American Trust Fund Litigation, 928 F. Supp. 333, 335-6 (S.D.N.Y. 1996) (also describing in detail the structure of Lloyd's "unique and complex insurance market"). Plaintiffs are External Names.

B. Lloyd's Allegedly Fraudulent Solicitation of Plaintiffs

Plaintiffs allege that defendants engaged in a scheme to defraud them by offering and selling investment contracts in the form of memberships in Lloyd's. It is alleged that, in recruiting plaintiffs, defendants failed to disclose material information in connection with investment[**4] in Lloyd's. Specifically, plaintiffs claim that defendants failed to disclose: (1) exposure to unquantifiable liability as a result of asbestos and pollution risks underwritten decades ago and passed on to plaintiffs; (2) joint liability for the underwriting losses of other investors despite representations that the plaintiffs were only subject to liability for those risks they agreed to underwrite; (3) the collection of funds from plaintiffs for undocumented losses; and (4) exposure to unquantifiable liability for claims that may be brought at any time in the future. See Plaintiffs' Memorandum in Opposition to Defendants' Motion to Dismiss ("Plaintiffs' Memo") at 3 (citing Declaration of Arthur A. Stamm ("Stamm Decl."), dated December 17, 1996 at P 24).

C. The Original General Undertaking and the New York Collateral

At the time of their recruitment, plaintiffs signed a series of agreements, including a General Undertaking Agreement (the "Original Undertaking"). n3 The Original Undertaking was signed by each plaintiff in New York, and expressly requires each plaintiff to execute a variety of subordinate agreements, instruments, and acknowledgments under by-laws adopted by Lloyd's. [**5] See Stamm Decl. at P 48. The Original Undertaking contained no forum selection or choice-of-law clauses.

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n3 Arthur Stamm signed the Original Undertaking in 1977, Maureen Olivo signed the Original Undertaking in 1979, and Philip Stamm signed the Original Undertaking in 1980. See Stamm Decl. at P 49.

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Plaintiffs were also required to post collateral in connection with their membership in Lloyd's for the purpose of meeting potential liabilities. Arthur Stamm deposited with defendant Barclays Bank of New York 22,516 shares of common stock of Stamm International Corporation. Maureen Olivo and Philip Stamm posted shares of the same stock, in the amounts of 10,620 and 10,654, respectively. In turn, Barclays PLC issued guarantees to Lloyd's in the amount of # 30,000 and # 157,000 for Arthur Stamm; # 157,000 for Maureen Olivo; and # 105,000 for Philip Stamm. See id. at P 43.

D. The New General Undertaking

In April of 1986, Lloyd's sent plaintiffs a new form General Undertaking (the "New Undertaking") [**6] and informed plaintiffs that they were to sign the New Undertaking if they wished to continue underwriting at Lloyd's. See id. at P 50. Plaintiffs allege that if they had chosen to withdraw from Lloyd's rather than sign the New Undertaking, they would have faced "substantial" termination costs. Plaintiffs also allege that their collateral would have been held by Lloyd's after they withdrew and would have remained encumbered for "years to come". See Plaintiffs' Memo at 8 (citing Stamm Decl. PP54-56). The New Undertaking contains a forum selection clause n4 (the "FS clause") [*727] requiring all litigation to be brought in England, and a choice-of-law clause n5 (the "COL clause") requiring all disputes to be governed by the laws of England. Each plaintiff signed the New Undertaking.

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n4 The forum selection clause 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 or relating to the [Name's] membership of and/or underwriting of insurance business at, Lloyd's." See Lloyd's Memorandum in Support of Motion to Dismiss ("Lloyd's Memo") at 6 (citing Clause 2.2 of the New Undertaking).[**7]

n5 The choice-of-law clause states: "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." See Lloyd's Memo at 7 (citing Clause 2.1 of the New Undertaking).

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II. Plaintiffs' Motion to Certify for Interlocutory


A. Applicable Legal Standard

Section 1292(b) allows for an appeal from an otherwise unappealable interlocutory order upon consent of both the District Court and the Court of Appeals. The statute states in pertinent part:

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, she shall so state in writing in such order. The Court of[**8] Appeals . . . may thereupon, in its discretion, permit an appeal to be taken from such order. . . .

28 U.S.C. ? 1292(b). The Court of Appeals recently examined the legislative history and purpose of 1292(b) in Koehler v. Bank of Bermuda Ltd., 101 F.3d 863 (2d Cir. 1996), and concluded:

It is a basic tenet of federal law to delay appellate review until a final judgment has been entered. Section 1292(b)'s legislative history reveals that although that law was designed as a means to make an interlocutory appeal available, it is a rare exception to the final judgment rule that generally prohibits piecemeal appeals. The use of ? 1292(b) is reserved for those cases where an intermediate appeal may avoid protracted litigation.

Id. at 865-66 (citations omitted) (also noting that 35 motions for interlocutory appeal were filed from 1994 through 1995, of which only eight were granted by the Second Circuit). Hence, in determining whether to certify an interlocutory order for appeal, a district judge should focus primarily on the question of whether doing so would preserve judicial resources by avoiding "fruitless" litigation. Id. at 866 (citing Note, Interlocutory [**9] Appeals in the Federal Courts Under 28 U.S.C. ? 1292(b), 88 Harv. L. Rev. 607, 609-11 (1975)).

B. Analysis

Plaintiffs cite several cases to support their argument that this dispute does not arise out of "international or foreign banking transactions" within the meaning of 12 U.S.C. ? 632, and therefore that remand is appropriate. See, e.g., Bank of New York v. Bank of America, 861 F. Supp. 225, 232 (S.D.N.Y. 1994) ("a District Court cannot find that it has ? 632 jurisdiction merely because there was a federally chartered bank involved, there were banking-related activities, and there were foreign parties") and Lazard Freres & Co. v. First National Bank of Maryland, 1991 U.S. Dist. LEXIS 14665, No. 91 Civ. 0628, 1991 WL 221087 (S.D.N.Y. 1991). This argument, however, half-misses the mark. The October 23, 1996 Order held:

This dispute arises out of what might also be characterized as "international financial operations" within the meaning of ? 632. As Judge Sweet wrote, the plain meaning of the statutory phrase "other international or foreign financial operations" is international or foreign financial operations other than banking. See In re Lloyd's American Trust Fund Litigation,[**10] [928 F. Supp. at 341]. Thus, even if the parties' transactions do not constitute "international or foreign banking," they undoubtedly [*728] fall into the general statutory category of "financial operations".

Stamm, 1996 U.S. Dist. LEXIS 15781, No. 96 Civ. 5158, 1996 WL 614087, at *2.

Plaintiffs now argue that in Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 791 (2d Cir. 1980), cert. denied, 449 U.S. 1080, 66 L. Ed. 2d 804, 101 S. Ct. 863 (1981), the Court of Appeals rejected the proposition that ? 632 jurisdiction can be based upon non-banking international financial operations. See Plaintiffs' Reply Memorandum in Support of Motion to Certify Order for Appeal ("Plaintiffs' Reply") at 3. I disagree. Vintero Sales did not read the clause "other international or foreign financial operations" out of ? 632. It merely held that intervention by nationally chartered banks cannot serve as a basis for ? 632 jurisdiction. See id. at 792 ("intervention will not be permitted to breathe life into a 'nonexistent' law suit") (quotation and