Connecticut Law Review
Fall 1997

Note & Comment

*257 ALLEN V. LLOYD'S OF LONDON: A COMMENT ON FORUM SELECTION

David A. Fitzgerald

Copyright ©  1997 Connecticut Law Review; David A. Fitzgerald

I. Introduction

  Over the past few years, Lloyd's of London ("Lloyd's") has been embroiled in a seemingly endless amount of litigation with its underwriting members.  The disputes arose in the wake of devastating financial losses suffered by many members of Lloyd's who previously had underwritten risks, primarily reinsurance risks, placed on this self-regulated insurance market.  The enormous underwriting losses and the uncertainty created by the ensuing litigation brought into question the solvency of Lloyd's and brought into question its ability to continue as a going concern.  In response to these questions, Lloyd's developed a plan of Reconstruction and Renewal (the "Plan").  The Plan outlined the process through which Lloyd's intended to pass various solvency tests which were soon to be administered by insurance regulators in Great Britain and the United States.  The controversy in Allen v. Lloyd's of London  [FN1] centered around Lloyd's solicitation of support for the Plan.

  The Plan was designed to put an end to the host of litigation between Lloyd's and its members.  Pursuant to the Plan, certain Lloyd's insiders would provide funds to partially offset the members' underwriting losses if the underwriting members would waive any claims they may have had against Lloyd's or the insiders.  The Plan contemplated the formation of a new reinsurance entity which was to be capitalized with proceeds from the insiders' settlement offer as well as additional assessments on the members.  The reinsurance entity was to assume the underwriting members' primary liability on policies issued before 1993.  Lloyd's required its members to make an irrevocable election prior to August 28, 1996 with respect to their participation in the Plan.

  The Allen plaintiffs, all of whom are underwriting members of *258 Lloyd's, alleged that the disclosure of financial information about the Plan and its underlying assumptions lacked specificity and was therefore inadequate to enable them to make an informed election.  Furthermore, they alleged that the inadequate disclosure accompanying Lloyd's solicitation of support for the Plan violated federal law.  The plaintiffs brought suit in the District Court for the Eastern District of Virginia seeking a declaratory judgment that Lloyd's was denying them "disclosure rights guaranteed by (the) United States securities laws" and seeking an injunction compelling disclosure. [FN2]

  Determining that it was reasonably likely that Lloyd's had violated the securities laws, the district court set a date for trial on the merits.  The district court also enjoined Lloyd's from "demanding settlement from the American Names without providing the disclosures required by the securities laws." [FN3]  Lloyd's appealed the district court's ruling; on expedited review, the Court of Appeals for the Fourth Circuit vacated the injunction and ordered the district court to dismiss the plaintiffs' claim. [FN4]  The Court of Appeals premised its decision on the conclusion that "the policies of the United States securities laws do not override the parties' choice of forum and law." [FN5]

  The Fourth Circuit's conclusion is the focus of this Comment.  This Comment analyzes the decision to enforce a contractual choice of forum in a case where the plaintiffs' exclusive remedy was a procedural remedy which was available under the securities laws of the United States but which was unavailable in the foreign tribunal.

  The background section of this Comment discusses both the historical treatment of forum selection clauses and the modern American trend.  The landmark cases of The Bremen [FN6] and Scherk v. Alberto-Culver [FN7] are reviewed.  In The Bremen, the Supreme Court held that forum selection clauses are presumptively valid, but it also noted several exceptions to the presumption. [FN8]  The Supreme Court stated that forum selection clauses that are contrary to public policy, that are unreasonable or unjust, or that have been obtained by fraud or overreaching *259 are not enforceable. [FN9]  Through a review of the leading United States cases, this Comment explores the contours of the presumption of validity, as well as the articulated exceptions.  The background section concludes with a general overview of Lloyd's operations and a discussion of previous forum selection clause litigation in which Lloyd's has been a party.

  Following the background presentation, this Comment addresses the facts and procedural posture of Allen so as to facilitate comparison between Allen, the leading United States cases governing forum selection, and the plethora of other forum selection cases in which Lloyd's has been a party.  The proceedings before the District Court for the Eastern District of Virginia and the Court of Appeals for the Fourth Circuit are reviewed in this section.

  In the analysis section, this Comment narrows its focus to the decision to enforce the forum selection clause in Allen despite the fact that enforcement appears contrary to public policy.  The analysis demonstrates that the public policy exception has had an extremely limited application.  It further demonstrates that Allen casts doubt on the exception's continued vitality, particularly in the Fourth Circuit.  Ultimately, the analysis questions the merit in fashioning such a narrow exception, and it counsels against a restricted application of the exception in Allen, and similar cases, where the policies behind federal legislation are undermined by the rigid and reflexive enforcement of forum selection clauses.  In this regard, the analysis draws support from Richards v. Lloyd's of London, [FN10] a recent decision in which the Court of Appeals for the Ninth Circuit concluded that it was wholly improper for federal courts to assess the reasonableness of Lloyd's forum selection clauses because Congress had rendered such clauses void. [FN11]

II. Background

  Forum selection clauses are contractual provisions wherein the contracting parties specify a particular forum as the exclusive forum for dispute resolution.  Enforcement of these clauses has undergone a complete metamorphosis in the past twenty-five years.  Historically, forum *260 selection clauses were disfavored and not enforced; [FN12] however, the Supreme Court in such cases as The Bremen and Scherk has "liberalized the American rules applicable to (such) clauses and made them more consistent with the needs of transnational commerce." [FN13] The liberalization of the American rules and the application of the rules to the various Lloyd's cases are taken up below.

A. Historical Treatment

  Traditionally, American courts were hostile toward exculpatory provisions and refused to enforce those clauses which specified the application of foreign law. [FN14]  The strategy of selecting a foreign forum is "essentially the same" as comparable clauses specifying foreign law. [FN15] The rationale for the traditional treatment of these clauses is evidenced by the statement that "agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced." [FN16]  While reaffirming the per se invalidity of such agreements, Carbon Black Export, Inc. v. The Monrosa [FN17] also noted that stipulations specifying venue were similarly not enforced. [FN18]

  Indussa Corp. v. S.S. Ranborg [FN19] is the leading case for the invalidation of a forum selection clause on the grounds that enforcement would have been contrary to a public policy which had been expressed by Congress.  In Indussa, the Indussa Corporation brought a libel in rem action against the defendant in the United States despite the fact that the parties' contract, reflected in a bill of lading, specified Norway as the forum for any litigation.  The Court of Appeals for the Second Circuit noted that the parties' contractual choice of forum "put() .a high hurdle' in the way of enforcing liability, and thus (wa)s an effective means for carriers to secure settlements lower than if cargo (owners) *261 could sue in a convenient forum";  [FN20] therefore, it concluded that the clause violated the Carriage of Goods by Sea Act ("COGSA"). [FN21]  The Court of Appeals held that by enacting COGSA "Congress (had) outlawed clauses prohibiting American courts from deciding causes otherwise properly before them." [FN22]  In deciding Indussa, the Court of Appeals overruled William H. Muller & Co. v. Swedish American Line, [FN23] which it concluded had been reasoned "too heavily on general principles of contract law and gave insufficient effect to the enactments of Congress." [FN24]  In William H. Muller & Co., the Court of Appeals for the Second Circuit had previously held that enforceability of a forum selection clause in a bill of lading, i.e., one subject to COGSA, depended upon the reasonableness of the agreement. [FN25]

B. Modern Trend

  In The Bremen, decided in 1972, the Supreme Court ruled that forum selection clauses are "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances."  [FN26]  The Bremen Court also identified three exceptions to the general rule.  In this section, The Bremen and cases involving the public policy exception are discussed to provide an understanding of the current state of the law governing forum selection clauses.

  1. The Bremen

  The impact of The Bremen on current forum selection disputes merits a detailed review of the decision.  The defendant-petitioner, a German towing corporation, contracted with the Zapata Off-Shore Company, plaintiff- respondent, to tow Zapata's expensive drilling rig from *262 Louisiana to Italy.  [FN27]  The contract contained a forum selection clause which stated that "(a)ny dispute arising must be treated before the London Court of Justice."  [FN28]  After a severe storm caused extensive damage to the drilling rig, Zapata commenced a suit in admiralty in the United States, thereby ignoring its contractual promise to "treat" all disputes before the London Court of Justice. [FN29]  The defendant invoked the forum selection clause and moved to dismiss Zapata's claim for lack of jurisdiction.  Relying on Carbon Black Export, Inc., [FN30] the district court placed little, if any, weight on the existence of the forum selection clause; instead, it examined the motion to dismiss under the forum non conveniens doctrine. [FN31]  The district court's forum non conveniens analysis [FN32] resulted in its denial of the motion to dismiss. [FN33]  A divided circuit court, sitting en banc, affirmed.

  The Supreme Court granted certiorari in order to review the decision "declining to enforce a forum-selection clause governing disputes arising under an international . . . contract . . . ." [FN34]

  a. Presumptive Validity

  The Supreme Court held that forum selection clauses are presumptively valid, and justified its conclusion on three grounds. [FN35]  First, the court viewed the conclusion as the logical extension of its own precedent. [FN36] Second, it noted that presumptive validity was the approach followed by other common law countries including England. [FN37]  Third, the Supreme Court stated that the need to keep pace with the requirements of expanding world trade and commerce compelled the conclusion.  With respect to the third justification, the Supreme Court pointed out that "(w)e (Americans) cannot have trade and commerce in world *263 markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts." [FN38]  Furthermore, the Supreme Court characterized the ability to specify a forum in advance of controversy as an "indispensable element in international trade, commerce, and contracting." [FN39]

  In addition to justifying its conclusion on the three grounds noted above, the Supreme Court distinguished The Bremen from the disputes in Indussa and Carbon Black Export, Inc., where a federal law (COGSA) was at issue. [FN40]

  b. Articulated Exceptions

  The Bremen is also noteworthy because it articulated the exceptions to the presumption of validity for forum-selection clauses.  The Supreme Court held that forum selection clauses are not enforceable (1) when the resisting party can "clearly show that enforcement would be unreasonable or unjust," [FN41] (2) when the clause is the result of fraud or overreaching, [FN42] or (3) when enforcement would contravene a strong public policy, "whether declared by statute or judicial decision." [FN43]

  2. The Leading Cases on the Public Policy Exception

  The arguments from the leading Supreme Court cases involving the public policy exception to the presumption of validity are scrutinized in this section to determine the boundaries of the exception.

  In Scherk v. Alberto-Culver, a sharply divided Supreme Court [FN44] enforced a clause, in a contract for the sale of Scherk's business to Alberto- Culver, which specified arbitration in the International Chamber of Commerce in Paris. [FN45]  Alberto-Culver alleged that Scherk failed to disclose encumbrances on certain of its trademarks which it had contracted *264 to transfer to Alberto-Culver commensurate with a sale of three of Scherk's enterprises.  Alberto-Culver claimed that Scherk's failure to disclose the encumbrances amounted to a fraudulent misrepresentation in violation of section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") [FN46] and rule 10b-5 promulgated thereunder.

  The Supreme Court enforced the arbitration clause despite the claim of a securities law violation and despite the fact that the securities laws contain explicit antiwaiver provisions.  In deciding Scherk, the Supreme Court distinguished Wilko v. Swan, [FN47] primarily on the grounds that Scherk was a "truly international agreement." [FN48]  The Court also distinguished Wilko on the grounds that Scherk was governed by the 1934 Act whereas Wilko was governed by the Securities Act of 1933 (the "1933 Act"). [FN49]

  In Wilko, the plaintiff alleged that the defendant's false representation as to the value of a business' common stock had induced him to purchase shares of the business.  After suffering a loss on the shares, Wilko brought suit in federal court claiming that the defendant securities broker had violated section 12(2) of the 1933 Act. [FN50]  The defendant moved to stay the trial pending arbitration in accordance with a predispute agreement between the parties.

  The Wilko court identified the inherent tension between the antiwaiver provision of the 1933 Act [FN51] and the Federal Arbitration Act ("FAA" or "Arbitration Act"), [FN52] which favors the enforceability of arbitration clauses.  After noting the tension between the statutes, the Supreme Court concluded that an agreement to arbitrate was an unenforceable stipulation because Congress had intended that the right to select the judicial forum could not be waived. [FN53]

  In addition to distinguishing Wilko, the Supreme Court in Scherk *265 determined that an "agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause." [FN54] Therefore, it relied substantially on The Bremen's rationale when it decided to enforce the arbitration clause.  The Supreme Court's statement, that the " parochial refusal by the courts of one country to enforce an international arbitration agreement would . . . frustrate" the goal of improving the orderliness and predictability of international business transactions, [fn55] HARKENS DIRECtly back to the bremen.  GivEN the fact that the bremen did not involve statutory interpretation, the Scherk majority's decision to rely on The Bremen's rationale in a case which centered around apparently conflicting statutes was a significant jump.

  According to the four dissenting justices, "(n)either section 29 (of the 1934 Act) [FN56] . . . nor The Bremen justifie(d) abandonment of (the) national public policy that securities claims be heard by a judicial forum simply because some international elements (were) involved in a contract." [FN57] The dissenting justices argued that American standards of fairness in security dealings should govern the destinies of American investors until Congress, not the judiciary, changed the standards. [FN58]

  In Shearson/American Express, Inc. v. McMahon ("Shearson"), [FN59] the Supreme Court extended Scherk and further limited Wilko by holding that claims for violations of the 1934 Act, arising in a domestic context, were subject to compulsory arbitration pursuant to a contractual agreement between the parties. [FN60]  The McMahons alleged that Shearson/American Express, Inc. had violated section 10(b) of the 1934 Act by engaging in excessive trading in the McMahons' account and by making false statements and omitting material facts when providing investment advice to the McMahons.  The McMahons sued in district *266 court despite their predispute agreement to arbitrate.

  The Supreme Court determined that the FAA mandated enforcement of the agreement absent a contrary "congressional command." [FN61]  The McMahons were unable to persuade the Supreme Court that the antiwaiver provisions of the securities laws conflicted with the Arbitration Act and thus amounted to a contrary command.  The Supreme Court noted that subsequent to the Wilko decision, Congress had granted the Securities and Exchange Commission broad power to regulate arbitration procedures and, therefore, an agreement to arbitrate did not equate to a "waiver of the protections of the act."  [FN62]  Because the agreement to arbitrate did not equate to a waiver, the securities laws and the Arbitration Act were not in conflict.

  The Supreme Court also held that the plaintiffs' claims arising under the Racketeer Influenced and Corrupt Organizations Act ("RICO") [FN63] were arbitrable. [FN64]  In so deciding, it noted that "nothing in RICO's text or legislative history . . . demonstrates an exception to the (FAA) for RICO claims." [FN65]  The repetitive references to the FAA demonstrate the justices' keen awareness of the federal preference for resolving disputes through arbitration.

  In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., [FN66] the Supreme Court held that antitrust claims arising under the Sherman Anti-Trust Act [FN67] may be encompassed within an arbitration clause embodied in an international commercial transaction. [FN68]  In this case, Mitsubishi Motors, a Japanese corporation, alleged that Soler, a Puerto Rican corporation, had breached its sales agreement.  Mitsubishi Motors brought an action in the District Court for the District of Puerto Rico to compel Soler to arbitrate. Soler counterclaimed that Mitsubishi Motors and Chrysler-International had conspired to divide markets in restraint of trade. [FN69]  The sales agreement between the parties specified that all disputes were to be arbitrated in Japan.

  Relying primarily on Scherk and, to a lesser extent, The Bremen, *267 the Supreme Court concluded that international comity and "sensitivity to the need of the international commercial system for predictability in the resolution of disputes" required enforcement of the arbitration agreement, "even assuming that a contrary result would be forthcoming in a domestic context." [FN70]

  While Mitsubishi Motors adopts Scherk's rationale, it is somewhat less troubling because Soler's counterclaim under the Sherman Act was not protected by explicit antiwaiver provisions. [FN71]  Additionally, the Supreme Court noted that "in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies . . . we would have little hesitation in condemning the agreement as against public policy." [FN72]  In this case, however, there was no prospective waiver because at the "award-enforcement stage" the courts of the United States could, in a nonintrusive manner, "ascertain that the tribunal took cognizance of the antitrust claims and actually decided them." [FN73]

  To the extent that Mitsubishi Motors was decided on notions of international comity, more recent precedent appears to cause the opinion to lose force.  In Hartford Fire Insurance Co. v. California, [FN74] the Supreme Court stated that the issue of comity does not arise unless the laws of two countries are in direct conflict such that compliance with both is impossible. [FN75]

  The great extent to which the courts are prepared to enforce forum selection clauses is well illustrated by Carnival Cruise Lines, Inc. v. Shute. [FN76] Ms. Shute sued Carnival Cruise Lines for personal injuries which she alleged were caused by the defendant's negligence.  Ms. Shute commenced her suit in the District Court for the Western District of Washington although the contract specified that a court located in *268 the State of Florida was the exclusive forum for dispute resolution.  Citing the forum selection clause, the defendant moved to dismiss Ms. Shute's claim for lack of jurisdiction.

  The Supreme Court rejected the appellate court's decision that nonnegotiated forum selection clauses were per se invalid in favor of a regime of judicial scrutiny of the clauses for fundamental fairness.  Presumably, courts will have to scrutinize the clauses on a case by case basis, as no real standards were articulated. [FN77]  The appellate court's restricted adherence to precedent appeared acceptable because the facts in The Bremen were highly distinguishable from those presented in Carnival Cruise Lines.  The dispute in Carnival Cruise Lines involved a nonnegotiated clause between a commercial enterprise and an individual consumer while the dispute in The Bremen involved a freely negotiated clause between two commercial parties. Notwithstanding the distinction, the Supreme Court, finding no indication of a bad faith motive on the part of the defendant, held the clause to be enforceable. [FN78]

  The Supreme Court also rejected Ms. Shute's contention that the forum selection clause violated a federal statute, specifically section 183c of 46 U.S.C.App.  The statute provides that any provision or limitation in a contract which purports, in the event of loss of life or bodily injury arising from the negligence or fault of a ship owner or his servants, "to lessen, weaken, or avoid the right of any claimant to a trial by court of competent jurisdiction . . . are declared to be against public policy and shall be null and void and of no effect." [FN79]  The Supreme Court noted that the forum selection clause did not contravene the federal statute because a court located in the State of Florida would "plainly . . . (be) a .court of competent jurisdiction' within the meaning of the statute." [FN80]

  Section 183c of 46 U.S.C.App. is analogous to the provision of COGSA which was interpreted in Indussa. [FN81]  In Carnival Cruise Lines, the Supreme Court relied on a plain meaning approach to statutory interpretation while the Court of Appeals in Indussa flexibly read *269 COGSA to carry out its perception of congressional intent.  The different approaches to statutory construction resulted in dissimilar enforcement of forum selection clauses in cases governed by analogous federal statutes.

  Vimar Seguros y Reaseguros v. M/V Sky Reefer, [FN82] the most recent Supreme Court precedent with respect to forum selection clauses, substantially eliminated the anomaly between Carnival Cruise Lines and Indussa.  In Vimar, the petitioner asserted that an arbitration clause in a bill of lading, specifying that disputes would be arbitrated in Japan in accordance with Japanese law, was invalid under the FAA because it lessened liability in a way in which COGSA prohibited. [FN83]  Like Indussa, the argument was premised on the theory that the inconvenience and additional cost of arbitrating in Japan had the practical effect of lessening liability.  Construing the statute according to its plain meaning, the Supreme Court concluded that COGSA only prohibits the lessening of specific substantive liabilities and does not address transaction costs. [FN84]  The Supreme Court noted that the reasoning of Indussa "must give way to contemporary principles of international comity and commercial practice." [FN85]  Since COGSA does not specifically address transaction costs, enforcement of the arbitration clause would not contravene the public policies expressed by COGSA.  The Supreme Court stopped short of expressly overruling Indussa presumably because the clause at issue in Vimar was an arbitration clause subject to the FAA not a true forum selection clause like the one at issue in Indussa.

  3. Lloyd's of London

  In the past few years, Lloyd's has been sued by hundreds of its underwriting members who claim that Lloyd's has violated various provisions of the securities laws of the United States.  The litigation of these cases (collectively the "Lloyd's cases") has focused on the enforceability of forum selection clauses, identical to the clause at issue in Allen.  In the majority of these cases, Lloyd's has successfully argued that the claims should be dismissed for lack of venue.

  *270 a. What Is Lloyd's All About?

  Lloyd's of London is an unincorporated association which has facilitated the transaction of global insurance business for over 300 years. [FN86] Essentially, Lloyd's is a self-regulated insurance market consisting of insurance brokers, underwriters, and the Corporation of Lloyd's, a/k/a the Society of Lloyd's Underwriters (the "Society").  The Society was incorporated by the Lloyd's Act of 1871. [FN87]  The Lloyd's Act of 1982 established the Council of Lloyd's (the "Council") as the Society's governing body. [FN88] The Council is responsible for regulating the insurance business at Lloyd's and for the admission of the members of the Society, a/k/a Names. [FN89]  The Names, not the Society itself, are the underwriters and ultimate risk takers of the insurance business conducted on the Lloyd's of London market.

  Essentially, the mechanics of the Lloyd's market are as follows.  In exchange for a fee, "member's agents" provide Names with recommendations as to which insurance syndicates to join. [FN90]  The Names underwrite risks by participating in the syndicates, which are managed by a "managing agent" through an "active underwriter" [FN91] whom it designates and who is its "employee." [FN92]   The active underwriter selects the risks which the syndicate underwrites and determines the appropriate insurance premiums.  The active underwriter binds the participating Names in the syndicate to the specific policies being underwritten.  The Names have unlimited liability, but only for their proportionate share of the syndicate's underwriting risks.  They are not jointly liable. [FN93]  In addition *271 to appointing the active underwriter, the managing agent provides administrative services to the syndicates and maintains the syndicates' books and records.  It also selects an investment manager who places the insurance premiums earned on the policies underwritten in a trust fund, out of which claims are paid and reinsurance purchased, as described below. [FN94]

  Three years after a policy is underwritten, the managing agent estimates the syndicate's remaining liabilities on the policy and attempts to procure reinsurance from a new syndicate in exchange for a reinsurance premium.  Upon procuring reinsurance, the policy is closed and the syndicate's profit or loss on the policy is determined.  The policies underwritten in a given year collectively form the syndicate's policy year.  If the managing agent cannot calculate the syndicate's ultimate liabilities with some degree of certainty, reinsurance can not be obtained and the policy year will remain open.  In this run-off situation, claims are paid from the trust fund until the fund is exhausted, at which time the Names must personally satisfy the outstanding claims.

  b. The Problem

  The host of Lloyd's litigation [FN95] can be traced to policies written in the 1980s and early 1990s which remain open as of today.  In these years, several syndicates suffered enormous losses.  Many of these losses relate to asbestos and pollution claims from policies written decades ago which had been closed through reinsurance.  When the nature and potential magnitude of the pollution and asbestos liabilities were discovered, the syndicates which had reinsured the old policies became unable to procure new reinsurance.  The Names who were participating in these reinsuring syndicates were exposed to financial ruin because the syndicates' ultimate liabilities dwarfed their reinsurance premiums.

  Hundreds of American Names have sued elements of Lloyd's in United States courts claiming that various Lloyd's insiders, [FN96] including the Society, its Council, its managing agents, members' agents, and active underwriters, violated United States securities law.  The gravamen of most of these claims is that Lloyd's insiders solicited the plaintiffs to become Names and recommended that they join syndicates *272 which participated in reinsurance without disclosing the aforementioned liabilities.  The plaintiffs assert that the insiders failed to disclose the liabilities despite the fact that they were aware, or should have been aware, of their existence. [FN97]  Each plaintiff had entered into an agreement with the Council, the "General Undertaking."  The General Undertaking specifies 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." [FN98]  Since the cases involve claims under the United States securities laws, two aspects of English law become relevant.  First, English conflict of law rules preclude English courts from applying foreign statutory law. [FN99]  Second, the Society and its underwriting agents are exempt from English securities laws. [FN100]  It is clear that neither United States nor English securities laws will be applied in instances where the Lloyd's forum selection clauses are enforced.

  c. The Lloyd's Cases

  A number of the courts of appeals have ruled on the enforceability of the forum selection provision embodied in the General Undertaking.  The Courts of Appeals for the Second, Fifth, Sixth, Seventh and Tenth Circuits have enforced the provision and dismissed the cases for lack of venue.  The most significant of these decisions are discussed below.  This section also discusses the recent decision of the Court of Appeals for the Ninth Circuit which held the provision to be void.

  In Riley v. Kingsley Underwriting Agencies, Ltd., [FN101] Riley claimed that the Council and Society of Lloyd's "engaged in the offer and sale *273 of unregistered securities and made untrue statements of material fact and material omissions in connection with the sale of securities, (and, thereby) violat(ed) the Securities Acts . . . ." [FN102]  Riley also alleged common law fraud. [FN103]  The Court of Appeals for the Tenth Circuit dismissed Riley's claims against the Council and Society because in the General Undertaking Riley had assented to clauses specifying foreign law and a foreign forum. [FN104]

  The court of appeals never reached any question under the 1933 or 1934 Acts. [FN105]  Relying on Carnival Cruise Lines, Mitsubishi, Scherk, and The Bremen, the court concluded that forum selection provisions are to be given effect if the provisions are incorporated in "truly international (agreements) . . . and reflect numerous contacts with the foreign forum . . . ." [FN106]  The Tenth Circuit noted that enforcement of the clauses would require Riley to structure his case differently than if he were proceeding in the Federal courts, but he could, nevertheless, pursue an action for fraud. [FN107]

  In Roby v. Corporation of Lloyd's, [FN108] the Court of Appeals for the Second Circuit dismissed a complaint which alleged violations of United States securities laws as well as RICO. [FN109]  Although the court realized that "English conflict of law rules do not permit recognition of foreign tort or statutory law," [FN110] the court enforced the contractual clause in the General Undertaking which designated England as the forum for resolving all disputes.

  Unlike the decision by the Court of Appeals for the Tenth Circuit, the decision by the Second Circuit pointed out that the antiwaiver provisions of the securities laws clearly demonstrated Congress' intent that the public policies incorporated therein should not be thwarted. [FN111]  The court noted that this gave rise to "a serious question whether United States public policy ha(d) been subverted by the Lloyd's clauses." [FN112] *274 Relying on Mitsubishi Motors, the court indicated that if the plaintiffs had demonstrated that the remedies available in England were " insufficient to deter British issuers from exploiting American investors through fraud, misrepresentation or inadequate disclosure, (it) would not hesitate to condemn the choice of law (or) forum . . . as against public policy." [FN113] However, the court noted that English common law provided adequate remedies for fraud, deceit and misrepresentation.  Furthermore, it noted that although Lloyd's is generally exempt from liability to its members pursuant to an act of Parliament, it remains liable for acts done in bad faith. [FN114] Accordingly, it held that the plaintiffs had not overcome the presumptive validity of the forum selection clauses established in The Bremen.

  With respect to inadequate disclosures, the Second Circuit noted that the Securities Exchange Commission ("SEC") had not regulated the solicitation of American membership in Lloyd's and its syndicates because of the SEC's "apparent judgment that the Roby Names (were) sophisticated enough that they d (id) not need the disclosure protections of the securities laws." [FN115]  This amounted to a de facto exemption from the registration requirements of the securities laws.

  The Court of Appeals for the Seventh Circuit essentially adopted this reasoning in Bonny v. The Society of Lloyd's. [FN116]  Bonny involved an additional factor of significance in that the Society stipulated that it would not raise the affirmative defense of immunity, which it is granted by the Lloyd's Act of 1982. [FN117]  Accordingly, Lloyd's rendered itself subject to the full panoply of English common law, and thereby became liable for negligence as well as bad faith.  In so doing, Lloyd's weakened the Bonny Names' argument that as a matter of public policy the choice clauses should not be enforced.  In addition to Riley, Roby, and Bonny, Lloyd's has successfully argued for the dismissal of several other cases on the basis of improper venue. [FN118]

  *275 The Court of Appeals for the Fifth Circuit recently joined the ranks of the Second, Sixth, Seventh and Tenth Circuits when it decided to enforce the Lloyd's choice clauses. [FN119]  Concurrent with its decision in Haynsworth, the Fifth Circuit reversed the district court's decision in Leslie v. Lloyd's of London. [FN120]  With its decision in Leslie, the District Court for the Southern District of Texas had become the first federal court to refuse to enforce Lloyd's forum selection clause.  Although Leslie was ultimately reversed, the district court's decision is set out because it exemplifies the basic claim.

  The plaintiff in Leslie argued that the defendants had committed securities fraud in violation of the Securities Exchange Act of 1934.  The plaintiff alleged that he was the "victim of a scheme whereby .insiders' in the Society of Lloyd's concentrated highly undesirable long-tail asbestos and pollution risks in syndicates underwritten primarily by recently recruited .outside' Names from the United States, Canada, Australia, and elsewhere, while the (.insiders') focused their own efforts upon more lucrative syndicates . . . ."  [FN121]

  The district court refused to enforce the forum selection clause because the court concluded that Leslie's accession to the clause was obtained by fraud or, at a minimum, overreaching.  The court determined that "(t)he evidence (wa)s sufficient to support a finding that, at the time Leslie signed the revised General Undertaking, Lloyd's . . . had a duty to disclose material facts to Leslie . . . (and that) Lloyd's . . . engaged in misrepresentations, misleading partial disclosures, and nondisclosures of material facts . . . ." [FN122]

  Additionally, the clause, when considered in combination with the choice of law clause, violated public policy because it operated as a *276 prospective waiver of the securities laws. [FN123]  In this regard, the district court stated that Riley, Roby, Bonny, and Shell were "wrongly reasoned," and the court rejected the argument that the common law remedies available in England were sufficient to fulfill the policy objectives underlying the securities laws.  [FN124]

  The district court also responded to Lloyd's defense on the merits.  Lloyd's claimed that the securities laws did not apply because Leslie had never purchased or sold a security.  The district court relied on the following statements by the SEC to deny Lloyd's motion to dismiss.  "(T)he solicitation of participations involves the sale of a security, with the issuer of that security being the particular Member's agent involved.  Accordingly, such U.S. sales (are) subject to all of the provisions of the Securities Act and the Exchange Act, including the anti-fraud provisions." [FN125]

  Finally, Leslie addressed the issue of comity head on.  Relying on Hartford Fire Insurance Co., the court noted that the only substantial question on comity was whether or not the laws of the United States and Great Britain conflict.  Since British law did not require Lloyd's to act in a manner which violated United States securities law, comity did not provide a basis for declining jurisdiction. [FN126]

  In March of 1997, approximately six months after Allen was decided, the Court of Appeals for the Ninth Circuit held that Lloyd's choice clauses were "void because they violate the 1933 . . . and the 1934 (Securities) Act(s)." [FN127]  In Richards v. Lloyd's of London, a case wherein the plaintiffs asserted various violations of the securities laws, the Ninth Circuit concluded that the district court had made an error of law by assessing the reasonableness of Lloyd's choice clauses; therefore, it reversed the district court's order which had dismissed the plaintiffs' claims for lack of venue. [FN128]  The Ninth Circuit expressly recognized *277 that its interpretation conflicted with the decisions of the various courts of appeals which had previously opined on the enforceability of Lloyd's choice clauses. However, the court noted that the deviation was warranted because its fellow circuits had "improperly disregard(ed) the statutory antiwaiver provisions of the Securities Acts." [FN129]

  The Ninth Circuit bolstered its conclusion by distinguishing the Lloyd's cases from the Supreme Court precedent on which the Lloyd's cases relied.  It distinguished The Bremen and Carnival Cruise Lines on the grounds that there were no federal statutes applicable in those cases which impacted the enforceability of the clauses. [FN130]  The Ninth Circuit indicated that the antiwaiver provisions of the securities laws made it "unnecessary to examine whether enforcement of the clauses would be unreasonable under the test set forth in The Bremen and Carnival." [FN131]  The Ninth Circuit distinguished Scherk and the securities cases on the grounds that those cases were subject to the Arbitration Act and also subject to American law. [FN132]

  In addition to distinguishing the Supreme Court precedent, the Ninth Circuit relied on the dicta in Mitsubishi Motors, wherein the Supreme Court stated that it would condemn an agreement specifying foreign law and a foreign forum if the agreement amounted to a prospective waiver of a party's statutory remedies.  [FN133]  The Ninth Circuit noted that if the Supreme Court would condemn choice clauses "where they work against a public policy embodied in statutes," it surely would condemn the clauses at issue in Richards because they "run in the teeth of two precise statutory provisions making them void." [FN134]

  With an understanding of the background, as well as the subsequent Richards decision, it is time to turn to Allen.

*278 III. Facts and Procedural Posture

  Allen and ninety-two other American Names sued Lloyd's to compel the disclosure of additional information about Lloyd's plan of Reconstruction and Renewal.  Once the full extent of the problems associated with procuring reinsurance on asbestos and pollution coverage policies had emerged, Lloyd's developed the Reconstruction and Renewal plan.  Lloyd's developed the Plan in response to the impending administration of solvency tests, to be conducted on the Society by the British government and state insurance commissions in the United States. [FN135]  The Plan indicated that if the Society failed to meet the solvency tests, the Council would have to consider whether or not the Society was a going concern.  Furthermore, if the Council determined the Society was no longer a going concern, the Society would be forced into a run- off situation with consequent damages to the Names. [FN136]

  In general, the Plan consisted of a settlement offer from various Lloyd's insiders to the Names which was designed to put an end to the Lloyd's litigation. [FN137]  In addition to the settlement offer, the Plan contemplated the formation of a new entity ("Equitas") which was to reinsure the pre-1993 policy years which had remained open due to an inability of many syndicates to obtain reinsurance.  Equitas was to be capitalized with the proceeds from the settlement offer and by an assessment on the Names (the "finality bills").  The finality bills represented the current estimate of the "cost to the Name(s) of reinsuring all underwriting obligations from pre-1993 syndicate years of account." [FN138]  Finally, should Equitas turn out to be undercapitalized, the Names underwriting the pre-1993 years of account would remain liable for unpaid claims.

  In order to have benefited from the settlement offer, Names had to have (1) accepted the settlement offer by August 28, 1996, (2) entered into the settlement agreement, pursuant to which they waived any current or future claims arising out of pre-1993 account years, and (3) paid their finality bills. [FN139]

  *279 Here was the Names' basic dilemma.  In exchange for waiving any and all claims against Lloyd's on pre-1993 years of account, Names could have participated in the Plan.  The Names would thereby have received an allocation of the settlement funds and "some hope for finality, but no guaranty thereof."  [FN140]  Alternatively, Names could have foregone the settlement offer and chosen not to participate in the Plan.  In so doing, they could have expected an immediate assessment on their accounts to satisfy their proportionate share of the syndicates' estimated remaining liabilities.  However, by not participating, the Names would not have waived any potential claims.

  If a sufficient percentage of Names elected to participate in the Plan, the Plan was to be put into effect and the Names who elected not  to participate would nevertheless be bound by the Plan.  Names in this circumstance would neither receive an allocation of the settlement offer nor would they waive any claims. [FN141]  The effect on non-assenting Names was that their immediate assessment was higher than assenting Names because the non-assenting Names' assessment would not be offset by their proportionate share of the settlement offer.  The Names' dilemma was significantly compounded by the failure of the Plan to provide specific financial disclosures. [FN142]

  In the Allen litigation, the Names brought suit in the Eastern District of Virginia seeking a declaratory judgement that Lloyd's was violating United States securities laws and seeking a preliminary injunction prohibiting Lloyd's from forcing the Names to make an irrevocable election prior to August 28, 1996.  The Allen Names alleged that the disclosure of information and assumptions underlying the Plan was inadequate to enable them to make an informed decision and that Lloyd's conduct with respect to soliciting support for the Plan violated various provisions of the 1933 Act, the 1934 Act, and rules thereunder promulgated by the SEC.  Lloyd's allegedly solicited proxies or consents or authorizations respecting equity securities which contained material misrepresentations or omissions, in violation of section 14(a) of *280 the 1934 Act; offered to sell, without registration, securities subject to the registration requirements of the 1933 Act; offered to exchange securities in Equitas for the Names' existing securities, without complying with section 13(e) of the 1933 Act; and offered to sell an investment contract in Equitas without registration, in violation of sections 5 and 12(1) of the 1933 Act.

A. Proceedings before the District Court

  The District Court for the Eastern District of Virginia determined that it was reasonably likely that the "Names' investments in Lloyd's and participation in Equitas (we)re securities," [FN143] that the interests which Lloyd's was offering in Equitas constituted securities, [FN144] and that Lloyd's had violated the securities laws. [FN145]  It, thereupon, issued a preliminary injunction and set a date for trial on the merits.

  Lloyd's moved to dismiss, claiming that the designation of an exclusive English forum in the General Undertaking made any court in the United States an improper venue for litigation. [FN146]  Despite the presumptive validity of forum selection clauses, the district court denied the motion.  It relied on the public policy exception, as refined by Mitsubishi Motors and Vimar.  The district court stated that "if the plaintiffs' claims . . . were dismissed on the basis of the Lloyd's choice clauses, plaintiffs would be deprived of the protections afforded to them by the securities laws of the United States.  This court should, therefore, .not hesitate' to forestall enforcement of the . . . clauses." [FN147]

  Furthermore, the district court was persuaded by the argument, advanced by the Names and supported by the SEC in an amicus curiae brief, that the antiwaiver provisions in the 1933 [FN148] and 1934 [FN149] Acts are "express and unequivocal (congressional) directive(s) that the rights and obligations under the securities laws cannot be waived" and are not *281 " simply an expression of public policy that favors United States securities laws unless other comparable laws are available." [FN150]

  With respect to the other Lloyd's cases, the district court noted that in those cases where the clauses had been enforced, the clauses were enforced only after the courts had determined that the plaintiffs would be able to pursue damages and remedies in England.  Noting that the instant case was distinguishable because the applicable United States securities provisions "function as prophylactic rules requiring . . . prospective disclosure by issuers of equity securities," [FN151] the court held that English law was inadequate to prospectively deter British issuers from exploiting American investors through inadequate disclosure. [FN152]

B. Proceedings before the Court of Appeals

  The Court of Appeals for the Fourth Circuit reversed the district court and remanded Allen with instructions to dismiss. [FN153]  It "disagree(d) with . . . (the district court's) conclusion that the public policy underlying the United States securities laws justify denying enforcement of the parties' choice of forum and law clauses." [FN154]

  The Fourth Circuit justified its disagreement on four grounds. [FN155]  First, the court cited Shell, Bonny, Roby, and Riley as standing for the *282 proposition that British law "affords Names adequate remedies in the United Kingdom." [FN156]  Second, it noted that Congress did not intend that the disclosure requirements of the securities laws would be given extra- territorial effect and imposed on foreign markets merely because membership in such markets was solicited in the United States. [FN157]  Third, the court noted that its failure to enforce the parties' agreements would violate the " most fundamental precepts of international comity." [FN158]  Fourth, and perhaps most importantly, the court stated that: 
    (S)ignificant United States and foreign interests would be adversely affected if we were to insist that Lloyd's insurance underwriting syndicates comply with United States disclosure requirements.  Such a ruling would place at risk billions of dollars of insurance coverage for United States citizens because American Names could demand recision on the ground that their syndicates . . . did not comply with United States securities registration and disclosure requirements.  Insurance commissioners from several states have described the potential mass confusion and damage to the domestic insurance market that such a ruling would cause. [FN159]

IV. Analysis

  The precedents established by the Supreme Court and a majority of the courts of appeals considering the issue in the context of a Lloyd's case demonstrate that the public policy exception to the enforcement of forum selection clauses has seldom been applied. [FN160]   Allen casts additional *283 doubt on the exception's vitality.  Indeed, to the extent Allen influences other circuit courts, [FN161] it may indicate that the door to the public policy exception has been closed entirely.  This is so because it is virtually impossible to envision a more compelling scenario for the application of the exception.  [FN162]  There can hardly be any clearer an expression of public policy than express provisions of federal legislation which mandate the disclosure of financial information and which prohibit waiver of the statutory protection.

  Comparing Allen with the body of law dealing with the public policy exception reveals that the decision of the Court of Appeals for the Fourth Circuit cannot withstand scrutiny.  The Fourth Circuit appears to have erred: (1) in applying the Supreme Court precedents and in failing to distinguish Allen from the other Lloyd's decisions; (2) in deciding the territorial scope of the securities laws; and (3) in basing its decision on the grounds of comity.  More importantly, the Fourth Circuit appears to have paid insufficient attention to the enactments of Congress while attempting to balance the competing public policies at issue in this case.

A. Precedent

  The Fourth Circuit's first justification was based on the precedent established in the previous Lloyd's cases.  The decisions in these cases were grounded in Supreme Court precedent.  The Fourth Circuit failed to understand those decisions correctly.

  1. Supreme Court Precedent

  Much of the Supreme Court precedent addresses arbitration clauses as opposed to true forum selection clauses. [FN163]  Although arbitration *284 clauses have been compared to forum selection clauses, they differ in at least one material respect.  Unlike forum selection clauses, arbitration clauses "do not divest domestic courts of jurisdiction . . . ." [FN164]  In addition, the FAA expresses the strong federal policy of enforcing agreements to resolve disputes through arbitration. [FN165]  There is no similar statute compelling enforcement of forum selection clauses.

  In addition to the distinction based on arbitration, the leading Supreme Court cases are distinguishable on other grounds.  The Bremen is so factually distinguishable that, aside from its central holding, it sheds little light on the merit of the court's decision in Allen.  The degree of factual distinction is apparent when one considers that the Supreme Court in The Bremen was sitting in Admiralty, as compared with the Allen court which was evaluating a securities law claim.  In addition, the plaintiff in The Bremen was seeking the traditional contract remedy of damages while the Allen Names were seeking a statutory remedy. [FN166]  Unlike the Allen court, the Supreme Court was not faced with a situation where a procedural remedy provided for in federal legislation was unavailable in the foreign forum, nor did the Supreme Court have to weigh the impact an antiwaiver provision embodied in a federal statute has on the enforcement of a forum selection clause.

  Scherk and Shearson are far less factually distinguishable than The Bremen and therefore represent legitimate obstacles to the Allen Names.  In Scherk and Shearson, the Supreme Court was confronted by the dilemma of conflicting public policies expressed in the form of federal legislation.  The plaintiffs in Scherk and Shearson relied on the antiwaiver provisions of the United States securities laws; however, the policies behind the antiwaiver provisions are at odds with those behind the FAA.  In Allen, the FAA is not applicable because the clause in the General Undertaking is a forum selection clause, not an arbitration clause.  The lack of tension between two lawfully enacted statutes makes the argument advanced by the dissent in Scherk extremely compelling in Allen.  The dissent in Scherk argued that American standards of fairness in security dealings should govern the destinies of American *285 investors until Congress changed the standards. [FN167]  The Allen Court's failure to note the Scherk dissent's concern with balance of power is a significant shortcoming in its analysis.

  The fact that American law governed the plaintiffs' claims in Scherk and Shearson also distinguishes those cases from Allen.  Since "there is no reason to assume . . . that arbitrators will not follow the law," [FN168] the Scherk and Shearson plaintiffs were presumably protected by the securities laws of the United States despite being forced to arbitrate. [FN169]  By contrast, enforcement of the forum selection clause in Allen will result in the application of English law.  Under English law, the Allen Names have no statutory right to the disclosure guaranteed by the securities laws and will be unable to bring such a claim. [FN170]

  Unlike the securities laws, the antitrust laws at issue in Mitsubishi Motors   [FN171] do not contain explicit antiwaiver provisions.  This fact makes Mitsubishi Motors generally less troublesome than Scherk.  In Scherk, the Supreme Court strained to harmonize the public policies behind the FAA and those behind the explicit antiwaiver provisions of the securities laws.  The tension, if any, between the FAA and the antitrust laws is far less obvious.

  The Supreme Court's admonition in Mitsubishi Motors, that "in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies . . . we would have little hesitation in condemning the agreement as against public policy," [FN172] was unheeded by the court in Allen.  The fact that the admonition was unheeded is clear when one considers that enforcement of the forum selection clause will prevent the Names from currently pursuing any claim in England.  The Allen Names have been prevented from stating a current claim because the nature of their claim (a violation of the prophylactic requirements of the securities laws) and the remedy they seek (the disclosure of information rather than damages *286 for fraud or misrepresentation) are not recognized in England.

  The precedent established in Carnival Cruise Lines, a case described as an  "unfortunate mistake," [FN173] should not have compelled the result in Allen.  Carnival Cruise Lines rejected a standard that nonnegotiated forum- selection clauses were per se invalid [FN174] and, thereby, narrowed the public policy exception.  Although Allen bears some resemblance to Carnival Cruise Lines in that the forum selection clauses in both cases were not the subject of true negotiation, the differences in the cases are of fundamental importance.

  The central arguments for nonenforcement of the forum selection clauses were dramatically different.  Essentially, the plaintiff in Carnival Cruise Lines argued that it was unfair and contrary to public policy to place the excess cost and inconvenience of litigating in the foreign forum on the plaintiff in a personal injury case.  A version of this type of argument had carried the day in Indussa and Wilko, but it no longer persuaded a majority of the Supreme Court.  The plaintiffs' argument in Allen was completely different.  The Allen Names did not assert that the excess cost of litigating in England was unfair; rather, they asserted that unwaivable statutory rights guaranteed by the securities laws would be disregarded by the foreign tribunal if the forum selection clauses were enforced.  Unlike the remedy sought by the Allen Names, the remedy sought by the plaintiff in Carnival Cruise Lines (damages for personal injury) was available in the selected forum. [FN175]

  Vimar may have signaled the death knell of the public policy exception.  The Vimar majority noted that the reasoning of Indussa "must give way to contemporary principles of international comity and commercial*287 practice."  [FN176]  It should be remembered that Indussa had cautioned against relying "too heavily on general principles of contract law and g(iving) insufficient effect to the enactments of Congress." [FN177]

  At least two arguments can be made for not extending Vimar to Allen.  The first is the already familiar argument that Vimar involved an arbitration clause, not a true forum selection clause.  The second is a statutory argument.  In Vimar, the Supreme Court rejected the argument that COGSA implicitly precludes enforcement of forum selection clauses merely because it expressly precludes carriers at sea from limiting certain of their substantive liabilities.  The Supreme Court was not persuaded by the assertion that the increased transaction costs associated with litigating in a foreign forum had the effect of limiting substantive liability.  Vimar illustrates the Supreme Court's continuing hesitation to broadly construe remedial statutes and infer congressional intent.  Unlike the plaintiff in Vimar, however, the Allen Names rely on explicit statutory guarantees, i.e., disclosure requirements and antiwaiver provisions, not implication.  While the Vimar court cannot be severely criticized for deciding not to read into a statute a prohibition not therein expressed, the same cannot be said for the Allen court which decided to omit from its analysis that which was plainly expressed.

  2. Lloyd's Precedent

  The Allen court ignored the primary distinguishing factor between Allen and the aforementioned Lloyd's precedent; therefore, its significant reliance on the Lloyd's cases was misplaced.  Unlike the plaintiffs in the other Lloyd's cases who had been seeking to use the securities laws as a vehicle for enforcing claims based in fraud and misrepresentation, the Allen Names were seeking the prophylactic protections afforded by the disclosure requirements of the securities laws.  The Allen Names needed disclosure to make an informed election whether or not to participate in Lloyd's Restructuring and Renewal Plan, essentially a new endeavor.

  The court's failure to perceive the nature of the Allen Names argument is best illustrated by its statement that "(w)e do not believe that enforcing the parties' forum selection and choice of law provisions . . . will subvert the United States securities laws' policy of prohibiting *288 fraud." [FN178]  This statement essentially mirrors the rationale in Riley, wherein the court noted that enforcement of the clauses would require the plaintiff to structure his case differently than if he were proceeding in the Federal courts; he could, nevertheless, pursue an action for fraud. [FN179]  By implicitly reducing the policies, at least in an international context, to mere fraud prevention, the court disregards many of the public policies expressed in the securities laws.  There is no question that preventing fraud is not the only policy of the securities laws, a "central purpose is to protect investors through the requirement of full disclosure . . . ." [FN180]

  In addition to the distinction based on the type of claim and relief sought, Bonny is distinguishable because Lloyd's stipulated that it would not raise the affirmative defense of immunity.  Lloyd's stipulation in Bonny made it less likely that the policies behind the securities laws would be circumvented because Lloyd's subjected itself to the full panoply of English common law. Lloyd's has made no such stipulation in Allen.

  Turning to the influential Roby decision, besides the general distinction based on the type of claim and relief sought, one other point deserves discussion.  The Roby court equated the SEC's inaction with a de facto exemption for Lloyd's from the disclosure requirements of the securities laws.  [FN181]  As it relates to Allen, this aspect of Roby is unpersuasive. First, the SEC has appeared as amicus curiae in Allen.  Second, because Lloyd's Plan of Reconstruction and Renewal is essentially a new endeavor, it cannot be said that the SEC has demonstrated through a period of inaction and nonenforcement that the Plan is exempt from the securities laws.  Third, and of more importance, the Roby disclosure analysis has a fundamental flaw.  The Roby analysis virtually ignores the fact that Congress has provided individuals with private rights of action, distinct from the SEC's enforcement mechanisms.  [FN182]

  *289 In addition to the factual distinctions between Allen and the Lloyd's cases, a recent decision by the Court of Appeals for the Ninth Circuit indicates that the conclusions of law in those cases were simply wrong. [FN183]  Unfortunately, the court in Allen did not have access to the well reasoned decision in Richards, which stands for the proposition that it is wholly improper for federal courts to assess the reasonableness of the Lloyd's choice clauses because Congress, by enacting the antiwaiver provisions of the securities laws, has rendered such clauses void. [FN184]  The Ninth Circuit reached a conclusion contrary to its fellow circuits by distinguishing the Lloyd's cases from the Supreme Court precedents on which they rely.  The Bremen and Carnival Cruise Lines were distinguished on the grounds that there were no federal statutes applicable in those cases which impacted the enforceability of the choice of forum clauses. [FN185]  Scherk and the securities cases were distinguished on the grounds that they were subject to the Arbitration Act and also subject to American law. [FN186]  Unlike its fellow circuits which paid lip service to the persuasive dicta in Mitsubishi Motors, wherein the Supreme Court stated that it would condemn an agreement specifying foreign law and a foreign forum if the agreement amounted to a prospective waiver of a party's statutory remedies, [FN187] the Ninth Circuit relied on the dicta and actually condemned the clauses at issue.

B. Extraterritoriality of the Securities Laws

  The Fourth Circuit's second justification, i.e., that Congress did not intend for United States securities laws to be exported and imposed on foreign markets merely because membership in such markets was solicited in the United States, is highly suspect.  A party soliciting investment on United States soil is subject to the antiwaiver provisions of the securities laws. [FN188]  The antiwaiver provisions of the 1933 and 1934 *290 Acts make it clear that the Allen Names' acceptance of English law and an English forum should have been void.  This conclusion appears inescapable when one considers that United States securities laws will not be applied in England nor will Lloyd's be subject to English securities laws.

  The court's decision to enforce the forum selection clause appears misguided because it allows Lloyd's to avoid the impact of legislation by drafting contractual provisions which require exactly that which the securities laws preclude.  The Allen holding opens the door for two undesirable results.

  First, United States corporations might be able to avoid private enforcement of the securities laws and regulations by designing novel investments and by entering into agreements with their American investors which specify dispute resolution in a foreign forum.  Such a scheme would undercut the clearly preferable state of affairs where the  question of what constitutes a security within the meaning of the 1933 and 1934 Acts is answered by the courts of the United States not those of a foreign nation.

  Secondly, foreign corporations might be able to solicit investment in the United States in ways that domestic entities could not. [FN189]  For example, a foreign entity, armed with a forum selection clause, might avoid the cost and the liability associated with registering securities.  Since the goal of the securities law is to protect investors, [FN190] it is difficult to understand a system of unequal application vis-a-vis foreign and domestic entities. [FN191]

C. Comity

  An analysis of the third justification, comity, reveals that it cannot withstand scrutiny.  The Court of Appeals in Allen expressed substantial concern for the issue of international comity; however, it made no *291 mention of Hartford Fire Insurance Co. [FN192]  Hartford Fire Insurance Co., decided after Mitsubishi Motors, states that the issue of comity does not arise unless the laws of two countries conflict such that compliance with both is impossible. [FN193]  The court's failure to consider the impact of Hartford Fire Insurance Co. casts doubt on the merit of this aspect of its decision.  Although the court indicated that the imposition of United States securities laws would contravene the rules and regulations established in Great Britain,  [FN194] the court did not demonstrate how British laws prohibit Lloyd's from complying with United States securities laws.  Assuming that the United States securities laws require more disclosure than the applicable British laws, the mere fact that the levels of required disclosure differ does not indicate that the laws themselves conflict.  Comity cannot be considered an adequate justification in Allen because there does not appear to be any valid purpose for a law which would mandate that issuers of securities in Great Britain refrain from providing relevant investment information. [FN195]

D. Competing Public Policies

  The fourth justification is less assailable.  It may well be that the public policies advanced by the securities laws are counterbalanced by competing public policy concerns.  The Allen court articulated a concern that a contrary ruling would result in American Names demanding recision and, thereby, throw the insurance market into chaos.  The court's concern is arguably valid for the previous Lloyd's litigation; however, it does not recognize the uniqueness of the case at hand.  The concern is misplaced because the Allen Names were seeking financial disclosure of sufficient information so that they could make an informed decision about participating in a new entity.  They were not seeking recision of their existing agreements.  The court did not point to a valid reason for keeping the Names in the dark nor is such a reason self- evident.  If, after full disclosure, Names decided not to participate in the Plan, that was their right.  Chaos in the market would *292 not have ensued because the Names remained liable for the insurance they previously agreed to underwrite.  A policy of nondisclosure may simply delay the inevitable and perhaps lead to further fraud and abuses.  Full disclosure is advantageous to new policy holders as well. [FN196]

  From an equity standpoint the fourth justification, particularly as it applies to the other Lloyd's cases, may be acceptable.  At its core, the justification sacrifices American Names for the sake of American policy holders.  The trade off may seem appropriate because the American Names had a much greater connection to the Lloyd's market than American policy holders. Each Name traveled to England and was represented by an intricate web of agents. [FN197]  In terms of fairness, losses caused by the Names' failure to uncover their agents' fraud and abuse should hardly be shifted onto policy holders.

  The fact that the fourth justification is well grounded in equity, however, does not end the analysis.  It merely raises the fundamental question of what a court should do when it is presented with conflicting public policies.  In this regard, a court should defer to the policies expressed in the form of federal legislation when they conflict with judicially created policies.  As the Court of Appeals for the Ninth Circuit said in Richards, "(w)here a statute exists, a policy has been given form and focus and precise force.  A statute represents a decision by the elected representatives of the people as to what particular policy should prevail . . . ." [FN198]  Because the Allen Names' substantive disclosure rights were ignored by the Fourth Circuit, it is clear that it does not share the preceding view.  The court's decision to enforce the contractual agreement, when the policies behind the securities laws point toward a contrary result, is quite troublesome because it trumped congressional intent.  This trumping is apparent when one considers that the securities laws "quite clearly fall() into the category of remedial legislation" [FN199] and should be "construed broadly to effectuate (their) purposes." [FN200]

  Although the Allen Court is not alone in hesitating to broadly construe remedial statutes and infer Congressional intent, [FN201] stare decisis *293 does not mitigate the court's failure to effectuate the purposes of the securities laws.  In the most analogous cases, those based on arbitration clauses, the legislature had spoken twice, and the Supreme Court filled its traditional role as interpreter when it enforced the arbitration clauses.  In analyzing the Supreme Court precedent, the Allen court should have been careful to avoid equating, as opposed to analogizing, forum selection and arbitration clauses. [FN202]  The Allen court's inability to distinguish precedent and to give sufficient "effect to the enactments of congress" [fn203] RESULTED IN AN unwarranted infringement on the public policy exception.

V. Conclusion

  Allen further limits the already narrow construction of the public policy exception to the presumption of validity for forum selection clauses.  The public policy exception was tailor made to the facts of Allen; yet, it was not applied.  Allen indicates that federal courts, at least those in the Fourth Circuit, will respect forum selection clauses even though the claim involves a violation of the United States securities laws and the relief requested is affirmatively cited in those laws but where neither the claim nor the relief will be recognized in the *294 foreign forum.  More than any of the precedents on which it relies, Allen elevates the importance of forum selection clauses to a level above that of protecting United States citizens in accordance with the provisions of remedial legislation.  While facilitating international commerce via the enforcement of forum selection clauses may be a significant policy objective of the United States, the Fourth Circuit should have declined to advance this policy at the expense of sharply limiting the reach of remedial securities legislation.  The decision in Richards, which stands in stark contrast to that in Allen, perhaps will mark the point where the judiciary turned away from the reflexive enforcement of forum selection clauses which appear to contravene federal legislation.  At a minimum, the split in authority evidenced by Allen and Richards should provide the Supreme Court with the incentive necessary to articulate a unified position which gives enactments of Congress their appropriate deference.

[FN1]. 94 F.3d 923 (4th Cir. 1996), mandamus denied sub nom. In re Allen, 117 S. Ct. 2497 (1997).

[FN2]. Id. at 927.

[FN3]. Id. at 928.

[FN4]. See id. at 932.

[FN5]. Id.

[FN6]. M/S Bremen & Unterweser Reederei v. Zapata Off-Shore Co. (The Bremen), 407 U.S. 1 (1972).  The Bremen is an admiralty case.

[FN7]. 417 U.S. 506 (1974).  Scherk is a case involving United States securities laws.

[FN8]. The Bremen, 407 U.S. at 9-10.

[FN9]. See id. at 9, 15.

[FN10]. 107 F.3d 1422 (9th Cir. 1997), reh'g en banc granted, Nos. 95- 55747, 95-56467, 1997 WL 523074 (9th Cir. Aug. 22, 1997).

[FN11]. See id. at 1426, 1429.

[FN12]. See The Bremen, 407 U.S. at 9.

[FN13]. Georges R. Delaume, Contractual Choice of Forum, in 1 Transnational Contracts: Booklet 8, 16 (1990).

[FN14]. See, e.g., The Bremen, 407 U.S. at 23 (Douglas, J., dissenting).

[FN15]. Id. at 24 n.24.

[FN16]. Carbon Black Export, Inc. v. The Monrosa, 254 F.2d 297, 300-01  (5th Cir. 1958), cert. dismissed, 359 U.S. 180 (1959).  See also Insurance Co. v. Morse, 87 U.S. 445, 451 (1874).

[FN17]. 254 F.2d 297 (5th Cir. 1958), cert. dismissed, 359 U.S. 180  (1959).

[FN18]. See id. at 301 n.9.

[FN19]. 377 F.2d 200 (2d Cir. 1967) (en banc).  See Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 533 (1995) (for proposition that Indussa is leading case).

[FN20]. Indussa, 377 F.2d at 203 (citation omitted).

[FN21]. Carriage of Goods by Sea Act, 46 U.S.C. ß ß  1300-1315 (1994). 
Any clause . . . relieving the carrier . . . from loss or damage to or in connection with the goods, arising from negligence, fault or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this chapter, shall be null and void and of no effect. 
Id. S 1303(8).

[FN22]. Indussa, 377 F.2d at 204.

[FN23]. 224 F.2d 806 (2nd Cir. 1955).

[FN24]. Indussa, 377 F.2d at 202.

[FN25]. See William H. Muller & Co., 224 F.2d at 808.

[FN26]. The Bremen, 407 U.S. 1, 10 (1972).

[FN27]. See id. at 13.

[FN28]. Id. at 2.

[FN29]. See id. at 3-4.

[FN30]. Carbon Black Export, Inc. v. The Monrosa, 254 F.2d 297, 297 (5th Cir. 1958).

[FN31]. See The Bremen, 407 U.S. at 6.

[FN32]. Under the doctrine of forum non conveniens, "unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed."  Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947).

[FN33]. See The Bremen, 407 U.S. at 6.

[FN34]. Id. at 2.

[FN35]. See id. at 10.

[FN36]. See id. (citing National Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311 (1964).  National Equipment Rental, Ltd. concluded that a party may consent to jurisdiction where he cannot be found for service of process by the contractual designation of an agent for service.

[FN37]. See The Bremen, 407 U.S. at 11.  See also Georges R. Delaume, Law and Practice of Transnational Contracts 176-77 (1988).

[FN38]. The Bremen, 407 U.S. at 9.

[FN39]. Id. at 13-14.  The Supreme Court noted that per se invalidity, as articulated in Carbon Black Export, Inc., would stifle development of international commercial dealings.  See id. at 9.

[FN40]. See The Bremen, 407 U.S. at 11 n.11.  Because COGSA is not applicable, The Bremen is a pure contract case.  It therefore is distinguishable from the remaining cases discussed in this Comment because they all have a statutory element.

[FN41]. Id. at 15.  To be "unreasonable or unjust," conditions must be so "gravely difficulty and inconvenient that (the resisting party) will for all practical purposes be deprived of his day in court." Id. at 15-18.

[FN42]. See id. at 15.

[FN43]. Id. (emphasis added).

[FN44]. See Scherk v. Alberto-Culver, 417 U.S. 506, 520.  The vote was 5 votes to 4.

[FN45]. See id. at 508.  The agreement also provided for the application of Illinois law.  See id.

[FN46]. Securities Exchange Act of 1934 (hereinafter 1934 Act), 15 U.S.C. ß  78 (1994).

[FN47]. 346 U.S. 427 (1953).

[FN48]. Scherk, 417 U.S. at 515.

[FN49]. Securities Act of 1933 (hereinafter 1933 Act), 15 U.S.C. ß  77  (1994).  The Court noted that although the 1933 Act and the 1934 Act are similar, the Acts are not identical in scope.  See Scherk, 417 U.S. at 513.

[FN50]. See 1933 Act ß  12(2), 15 U.S.C. ß  77l(2) (1994).

[FN51]. Id. ß  14, 15 U.S.C. S 77n (1994).  Section 14 provides that "(a)ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this title or of the rules and regulations of the Commission shall be void."  Id.  Section 29(a) of the 1934 Act is virtually the same.  See 1934 Act ß  29(a), 15 U.S.C. ß  78cc(a) (1994).

[FN52]. Federal Arbitration Act, 9 U.S.C. ß ß  1-3 (1994).

[FN53]. See Wilko, 346 U.S. at 434-38.

[FN54]. Scherk, 417 U.S. at 519.  Cf. Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 542 (1995) (O'Connor, J., concurring) (noting that, in at least one material respect, arbitration clauses differ from true forum selection clauses, in that the former "do not divest domestic courts of jurisdiction").

[FN55]. Scherk, 417 U.S. at 516.

[FN56]. Section 29(a) of the 1934 Act provides that "(a)ny condition, stipulation or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder . . . shall be void."  1934 Act ß  29(a), 15 U.S.C. ß  78cc(a) (1994).

[FN57]. Scherk, 417 U.S. at 531 n.10 (Douglas, J., dissenting).

[FN58]. See id. at 528.

[FN59]. 482 U.S. 220 (1987).

[FN60]. Id. at 234.  In Rodriguez De Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989), the Supreme Court finally overruled Wilko. The impetus behind the decision was the desire to harmonize the judicial treatment of predispute agreements to arbitrate claims arising under the 1933 and 1934 Acts.  See id. at 484.

[FN61]. Shearson, 482 U.S. at 226.

[FN62]. Id. at 234.

[FN63]. Racketeer Influenced and Corrupt Organizations Act (hereinafter RICO), 18 U.S.C. ß ß  1961-1968 (1994).

[FN64]. See Shearson, 482 U.S. at 242.

[FN65]. Id.

[FN66]. 473 U.S. 614 (1985).

[FN67]. Sherman Anti-Trust Act, 15 U.S.C. ß ß  1-7 (1994).

[FN68]. See Mitsubishi Motors, 473 U.S. at 640.

[FN69]. See id. at 620.

[FN70]. Id. at 629.

[FN71]. See id. at 628-29.

[FN72]. Id. at 637 n.19.

[FN73]. Id. at 638.

[FN74]. 509 U.S. 764 (1993).

[FN75]. See id. at 799.  Interestingly, certain defendants in Hartford Fire Insurance Co. were Lloyd's affiliates who unsuccessfully attempted to be dismissed on the grounds of comity.  The Lloyd's affiliates noted that their activity was entirely consistent with British Law and Policy; however, they failed to argue that British law required them to act in a manner inconsistent with United States laws or that compliance with the laws of both countries was impossible.  See id. at 799, 809.

[FN76]. 499 U.S. 585 (1991).  The forum selection clause at issue in this case was embodied in a standard form contract mailed to the plaintiff on the back of her cruise ticket.  See id. at 587-88.

[FN77]. See id. at 594.

[FN78]. See id. at 595.  The holding was conditioned on the assumption that there was adequate notice of the clause to the plaintiff.  The enforcement of the forum selection clause in Carnival Cruise Lines has been the subject of sharp criticism.  See, e.g., Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 556 (1995) (Stevens, J., dissenting) (describing enforcement as an "unfortunate mistake").

[FN79]. 46 U.S.C. app. ß  183c (1994).

[FN80]. Carnival Cruise Lines, 499 U.S. at 596.

[FN81]. See id. at 604 (Stevens, J., dissenting).

[FN82]. 515 U.S. 528 (1995).

[FN83]. See id. at 528.  The petitioner's second assertion, i.e., that the Japanese arbitrator would not apply COGSA, was premature and mitigated by the fact that the district court retained jurisdiction while arbitration proceeded.  See id. at 539-41.

[FN84]. See id. at 534-35.

[FN85]. Id. at 537.

[FN86]. See Daniel M. Bianca & Eileen M. Dacey, Understanding Lloyd's, 644 Prac. L. Inst. 7, 9 (1992); Gary L. Lockwood, Lloyd's of London: A Primer, 735 Prac. L. Inst. 17, 17-18 (1996).

[FN87]. See Lockwood, supra note 86, at 29.

[FN88]. See id. at 30.  Prior to 1982, rule-making and enforcement authority was vested in the Society's members.  See id.

[FN89]. Id. at 31.  To qualify for membership, a prospective Name must satisfy "stringent (financial) conditions," be sponsored by two existing Names, appoint an approved member's agent, pass an interview conducted by representatives of the Council, and be elected by unanimous consent.  See id. at 36-37.

[FN90]. See id. at 41.  Member's agents also assist in the Name's application process for membership in the Society, administer the Name's investment funds, provide accounting for the Name's participation, and generally advise the Name on all Lloyd's matters.  See id.

[FN91]. See id. at 40.

[FN92]. See id. at 44.  Active underwriters are often Directors of the Managing Agencies which, in turn, are often affiliated, through common control, with members agents and investment managers.  See id. at 44-49.

[FN93]. See Bianca & Dacey, supra note 86, at 9.

[FN94]. See id. at 15-16

[FN95]. See notes 96-133 and accompanying text.

[FN96]. See Lockwood, supra note 86, at 41-49.  See supra notes 86-92 and accompanying text for a discussion of the interrelatedness of some of the parties.

[FN97]. For an example of the basic claim, see infra text accompanying note 120.  See also Lloyd's of London Settles with State of Missouri, Springfield Bus. J., Sept. 30, 1996, at 17 (Lloyd's reached a settlement with the State of Missouri, resolving a cease and desist order which had alleged that Lloyd's withheld material facts from investors.  After noting that the settlement addressed all of the issues raised in the cease and desist order, the Missouri Secretary of State said that Lloyd's "clearly took advantage of . . . investors (by) using money from American investors to cover tremendous insurance liabilities it had already incurred from pollution and asbestos risks." (quoting Missouri Secretary of State, Rebecca M. Cook)).

[FN98]. Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1359 (2d Cir. 1993).  In addition, the parties have selected English Law.  See id.

[FN99]. See Lawrence Collins, Dicey & Morris The Conflict of Laws 100  (Trevor C. Hartley et al. eds., 11th ed. 1987).  See also Roby, 996 F.2d at 1362.

[FN100]. See Financial Services Act, 1986, ch. 60, S 42 (Eng.).  See also Norman S. Poser, International Securities Regulation 104 (1991).

[FN101]. 969 F.2d 953 (10th Cir. 1992).

[FN102]. Id. at 956.

[FN103]. See id.

[FN104]. See id. at 956.  Riley's claims against his Members' Agent were similarly dismissed because, in a separate agreement, Riley had assented to arbitration in England with respect to claims against his Members' Agent.  See id. at 955.

[FN105]. See id. at 956.

[FN106]. Id. at 957.

[FN107]. See id. at 958.

[FN108]. 996 F.2d 1353 (2d Cir. 1993).

[FN109]. See id.  See also RICO, 18 U.S.C. ß ß  1961-68 (1994).

[FN110]. Roby, 996 F.2d at 1362.

[FN111]. See id. at 1364.

[FN112]. Id. at 1363.

[FN113]. Id. at 1364.

[FN114]. See Lloyd's Act, 1982, S 14 (Eng.).  See section 14(3)(i) for nonexemption of bad faith acts.

[FN115]. Roby, 996 F.2d at 1366.

[FN116]. 3 F.3d 156 (7th Cir. 1993).

[FN117]. See id. at 161.

[FN118]. See, e.g., Shell v. R.W. Sturge, Ltd., 55 F.3d 1227 (6th Cir. 1995) (Riley, Roby, and Bonny cited as persuasive authority); Haynsworth v. Lloyd's of London, 933 F. Supp. 1315, 1325 (S.D. Tex. 1996), aff'd, Nos. 96- 20769, 96-20805, 1997 WL 534146, at *1 (5th Cir. Aug. 29, 1997) (Public policy exception not warranted despite arguments made to the contrary by the SEC and several States' attorney generals.  According to the district court in Haynsworth, "(t)wenty-five years of silence from the SEC is more than glacial government; it is consent.  (The SEC's and attorney generals') spasm of activity does not represent a public policy to be factored into equity or convenience of the forum."); Tufts v. Corporation of Lloyd's, No. 95 CIV. 3480 (JFK), 1996 WL 533639 at *5 (S.D.N.Y. Sept. 19, 1996).

[FN119]. See Haynsworth, 1997 WL 534146, at *1.

[FN120]. Civ. A. No. H-90-1907, 1995 WL 661090 at *1 (S.D. Tex. Aug. 20, 1995), rev'd sub nom. Haynsworth, 1997 WL 534146.  The Fifth Circuit noted that its decision was compelled primarily by the Supreme Court's holding in Scherk v. Alberto-Culver, 417 U.S. 506 (1974).  See Haynsworth, 1997 WL 534146, at *13.

[FN121]. Leslie, 1995 WL 661090, at *2 (footnotes omitted).  See also discussion of insiders supra notes 86-92.

[FN122]. Id. at *21.  In reversing Leslie, the Fifth Circuit noted that to be invalidated on the basis of fraud or overreaching the forum selection clause itself must have been obtained in such a manner.  The Fifth Circuit concluded that the plaintiff had not proven that the clause in the general undertaking, as compared to the contract as a whole, had been procured by fraud or overreaching.  See Haynsworth, 1997 WL 534146, at *6-8.

[FN123]. See Leslie, 1995 WL 661090 at *21.  The court also found that the clause operated as a prospective waiver of Leslie's rights under the Deceptive Trade Practices--Consumer Protection Act.  See id.  See also Tex. Ins. Code. Ann. arts. 18.23(b), 21.21, ß  16(a) (Vernon 1981 & Supp. 1995).

[FN124]. See Leslie, 1995 WL 661090, at *21.

[FN125]. Letter from Mary E.T. Beach, Senior Associate Director of the Division of Corporate Finance, United States Securities and Exchange Commission, to Hon. Donald J. Pease, Member, United States House of Representatives 2-3 (Aug. 5, 1991), reprinted in Leslie, 1995 WL 661090, at *10.  The Fifth Circuit did not reject this aspect of the district court's decision; rather, it proceeded (without addressing the merits) as if the plaintiff had purchased a security.  See Haynsworth, 1997 WL 534146, at *9.

[FN126]. See Leslie, 1995 WL 661090 at **23-24.

[FN127]. Richards v. Lloyd's of London, 107 F.3d 1422, 1424 (9th Cir. 1997).

[FN128]. See id. at 1426.  The court of appeals "express(ed) no view on whether the Names' participation in Lloyd's constitutes the purchase of a . security' within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934."  Id.  Relying on the presumptive validity of forum- selection clauses, the district court had dismissed the case without allowing the plaintiffs a chance to prove that they had purchased "securities."  See id.

[FN129]. Id. at 1428.

[FN130]. Id. at 1428-29.  Recall that in Carnival Cruise Lines the Supreme Court concluded that section 183c of 46 U.S.C.App. was not applicable.  See supra p. 268.

[FN131]. Richards, 107 F.3d at 1429.

[FN132]. See id. at 1427.

[FN133]. See id. at 1422 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985)).

[FN134]. Richards, 107 F.3d at 1427.

[FN135]. See Allen v. Lloyd's of London, Civ. A. No. 3:96CV522, 1996 WL 490177, at *9 (E.D. Va. Aug. 23, 1996) (hereinafter Allen I), rev'd, 94 F.3d 923 (4th Cir. 1996) (hereinafter Allen II).

[FN136]. See Allen I, 1996 WL 490177, at *9.

[FN137]. See supra Section II.B.3.b.

[FN138]. Id. at *10.

[FN139]. See id. at *11-12.

[FN140]. Id. at *11.

[FN141]. After Allen was decided, Lloyd's announced that a sufficient percentage of Names had agreed to the Plan so as to enable Lloyd's to move forward.  See, e.g., John J. Fialka, U.S. Appeals Court Paves Way for Lloyd's Reconstruction Plan, Wall St. J., Aug. 28, 1996, at B5; Edwin Unsworth, Equitas Set to Commence Operations, Bus. Ins., Sep. 2, 1996, at 72.

[FN142]. Christopher Stockwell, chairman of Lloyd's Names Association's Working Party, a Names' lobbying group, stated that the Plan "is a deal without . . . honesty (because) (n)o Name knows if any of the figures are correct."  Lloyd's Settlement Still Not Enough, The Acct., Oct. 1, 1996, at 8 (quoting Stockwell).

[FN143]. Allen I, 1996 WL 490177, at *41.  Note the technical analysis of what constitutes a security is not a subject of this Comment.

[FN144]. See id. at *51.

[FN145]. See id. at *55.

[FN146]. See id. at *13.  Lloyd's also moved to dismiss the action on the grounds of forum non conveniens.  See id. at *1.

[FN147]. Id. at *19.  See also Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 540-41 (1995); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985).

[FN148]. See 1933 Act ß  14, 15 U.S.C. ß  77n (1994).

[FN149]. See 1934 Act ß  29(a), 15 U.S.C. ß  78cc(a) (1994).

[FN150]. Allen I, 1996 WL 490177, at *20.

[FN151]. Id. at *24 (emphasis added).

[FN152]. See id. at *23-24.

[FN153]. See Allen II, 94 F.3d 923, 926 (4th Cir. 1996).

[FN154]. Id. at 928.

[FN155]. The court of appeals addressed the merits of the Names' securities claims as well.  According to the court, neither the Names' initial investment in Lloyd's nor the Plan were subject to regulation by United States securities laws because they were neither securities nor solicitations in respect of securities.  See id. at 931.  But see Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1361-63 (2d Cir. 1993) (noting "serious" securities law question); Leslie v. Lloyd's of London, Civ. A. No. H-90-1907, 1995 WL 661090, at *15 (S.D. Tex. Aug. 20, 1995), rev'd on other grounds, Haynsworth v. Lloyd's of London, Nos. 96-20769, 96-20805, 1997 WL 534146, at *1 (5th Cir. Aug. 29, 1997) (finding that "Lloyd's and the . . . syndicates at Lloyd's were directly involved in the distribution of securities throughout the United States, and by entering this market have elected to subject themselves to the anti-fraud and disclosure requirements of the United States securities laws"). Cf. Richards v. Lloyd's of London, 107 F.3d 1422, 1426 (9th Cir. 1997) (expressing no view on whether or not a security had been purchased, but remanding that issue for trial).  The Allen Names filed a mandamus petition with the Supreme Court claiming, inter alia, that the Fourth Circuit's expedited review denied them due process of law by reaching ultimate conclusions on the merits without access to or review of the record relied upon by the district court and without full briefing on the issue.  See 65 U.S.L.W. 30 d106 (U.S. Dec. 10, 1996) (No. 96-1151).  The Supreme Court denied the petition.  See In re Allen, 117 S. Ct. 2497 (1997).

[FN156]. Allen II, 94 F.3d at 929.

[FN157]. See id.  See also Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1334 (2d Cir. 1972) (declining to extend securities laws to instances where there has been no actual fraud in United States and transaction took place outside of the United States).  But cf. Consolidated Gold Fields PLC v. Minorco, 871 F.2d 252, 261-62 (2d Cir. 1989) (stating that the "anti-fraud laws . . . may be given extraterritorial reach whenever a predominantly foreign transaction has substantial effects within the United States").

[FN158]. Allen II, 94 F.3d at 930.  The court noted that the application of United States securities laws would directly contravene British rules and regulations for the operation of Lloyd's.  See id.

[FN159]. Id. at 930.

[FN160]. See generally Linda S. Mullenix, Another Choice of Forum, Another Choice of Law: Consensual Adjudicatory Procedure in Federal Court, 57 Fordham L. Rev. 291, 355 (1988) (stating that "(a)lthough The Bremen speaks generally about non-enforcement where clauses contravene public policy, that stricture rarely prevails . . . .") (footnote omitted); Leandra Lederman, Note, Viva Zapatas: Toward a Rational System of Forum-Selection Clause Enforcement in Diversity Cases, 66 N.Y.U. L. Rev. 422, 430 (1991) (noting that lower federal courts have reflexively enforced forum selection clauses and, with respect to the application of exceptions, have "ignor(ed) the Bremen Court's instruction(s)").

[FN161]. See, e.g., Haynsworth v. Lloyd's of London, Nos. 96-20769, 96- 20805, 1997 WL 534146, at *13 (5th Cir. Aug. 29, 1997).  But see Richards v. Lloyd's of London, 107 F.3d 1422, 1428 (9th Cir. 1995).

[FN162]. See Allen I, Civ. A. No. 3:96CV522, 1996 WL 490177, at *20 (E.D. Va. Aug. 23, 1996) ("In neither The Bremen nor any ensuing decision was the Supreme Court called upon to apply the Bremen rule where Congress has expressed so clearly a public policy that is inconsistent with the enforcement of forum choice and choice of law clauses.  The anti-waiver provisions of the securities laws are targeted directly at the precise type of choice of law and forum clauses at issue in this case . . . .").

[FN163]. See, e.g., Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528 (1995) (interpretation of an arbitration clause); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) (same); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (same); Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) (same).

[FN164]. Vimar, 515 U.S. at 542 (O'Connor, J., concurring).

[FN165]. See, e.g., Mitsubishi Motors, 473 U.S. at 626 (stating that the FAA establishes that "any doubts concerning the scope of arbitratable issues should be resolved in favor of arbitration . . . .") (citations omitted).

[FN166]. See supra note 40 and accompanying text.

[FN167]. See Scherk, 417 U.S. at 528 (Douglas, J., dissenting).

[FN168]. Shearson, 482 U.S. at 232.

[FN169]. In fact, the Supreme Court noted in Shearson that the SEC had been granted broad power to regulate domestic arbitration procedures.  See id. at 233-34.

[FN170]. British conflict of law rules prevent British courts from recognizing foreign statutory law.  See Collins, supra note 99, at 100. Pursuant to an Act of Parliament, Lloyd's is generally exempt from any action by its members for acts not done in bad faith.  See Lloyd's Act, 1982, ß  14 (Eng.).

[FN171]. See generally Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth, Inc., 473 U.S. 614 (1985).

[FN172]. Id. at 637 n.19.

[FN173]. Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 556  (1995) (Stevens, J., dissenting).  See also Edward P. Gilbert, We're All in the Same Boat: Carnival Cruise Lines, Inc. v. Shute, 18 Brook. J. Int'l L. 597 (1992) (describing case as unfair and characterizing Court's decision as a failure to uphold congressional intent); Edward A.  Purcell, Jr., Geography as a Litigation Weapon: Consumers, Forum-Selection Clauses and the Rehnquist Court, 40 UCLA L. Rev.  423, 430 (1992) (noting the "Watering Down (of) the (Bremen's) .Reasonableness' Test").

[FN174]. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593  (1991).

[FN175]. In addition, despite the fact that the Allen Names were not seeking traditional remedies for fraud or bad faith, they alleged that Lloyd's had engaged in such conduct.  In fact, the Chief Executive Officer of Lloyd's admitted by affidavit that certain Lloyd's investors had been victims of fraud.  See Allen I, Civ. A. No. 3:96CV522, 1996 WL 490177, at *7 (E.D. Va. Aug. 23, 1996).  In Carnival Cruise Lines, the Supreme Court determined that there was no bad faith motive.  See Carnival Cruise Lines, 499 U.S. at 595. The factors mentioned above sufficiently distinguish Carnival Cruise Lines from Allen as to remove its precedential force.

[FN176]. Vimar, 515 U.S. at 537.

[FN177]. Indussa Corp. v. S.S. Ranborg, 377 F.2d 200, 202 (2d Cir. 1967)  (en banc).

[FN178]. Allen II, 94 F.3d 923, 929 (4th Cir. 1996).

[FN179]. See Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 958 (10th Cir. 1992).

[FN180]. Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).  See also  Basic, Inc. v. Levinson, 485 U.S. 224, 234 (1988) (noting that a "fundamental purpose" of the securities laws is to "substitute a philosophy of full disclosure for the philosophy of caveat emptor").

[FN181]. See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1365 (2d Cir. 1993).  See also Haynsworth v. Lloyd's of London, 933 F. Supp. 1315, 1321- 22 (S.D. Tex. 1996).

[FN182]. "(T)he Securities Act of 1933 . . . provides a defrauded purchaser with a .special right' of a private remedy for civil liability."  Scherk v. Alberto-Culver Co. 417 U.S. 506, 513 (1974).  Additionally, "federal case law has established . . . an implied private cause of action."  Id.

[FN183]. See Richards v. Lloyd's of London, 107 F.3d 1422 (9th Cir. 1997).  Cf. Leslie v.  Lloyd's of London, Civ. A. No. H-90-1907, 1995 WL 661090, at *22 (S.D. Tex. Aug. 20, 1995), aff'd, 85 F.3d 625 (5th Cir. 1996) (mem.) (decided prior to Allen; concluding that Riley, Roby, Bonny, and Shell were "wrongly reasoned").

[FN184]. See Richards, 107 F.3d at 1428.

[FN185]. See id.  Recall that in Carnival Cruise Lines the Supreme Court concluded that Section 183c of 46 U.S.C.App. was not applicable.  See supra p. 268.

[FN186]. See Richards, 107 F.3d at 1426.

[FN187]. See id. at 1427 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 413 U.S. 614, 637 n.19 (1985)).

[FN188]. See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 533  (Douglas, J., dissenting).  See also Leslie, 1995 WL 661090, at *14.  Cf. Consolidated Gold Fields PLC v. Minorco, 871 F.2d 252, 261-62 (2d Cir. 1989) (stating that the "anti-fraud laws . . . may be given extraterritorial reach whenever a predominantly foreign transaction has substantial effects within the United States").

[FN189]. See, e.g., Scherk, 417 U.S. at 533 (Douglas, J., dissenting)  (describing ability of foreign firms to nullify securities laws through the use of arbitration clauses).

[FN190]. See Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).

[FN191]. Apart from the goal of protecting investors, the possibility that foreign entities might avoid the cost of registering securities gives the foreign entities an unfair competitive advantage over American entities with respect to soliciting investment.

[FN192]. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 764 (1993).

[FN193]. See id. at 799.  See also Leslie, 1995 WL 661090, at *23-24.

[FN194]. Disclosure requirements in Great Britain are governed by the parties' contract, i.e., the General Undertaking.  See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1365 (2d Cir. 1993).

[FN195]. Cf. Basic, Inc. v. Levinson, 485 U.S. 224, 234 (1988) (noting that with respect to securities "(d)isclosure, and not paternalistic withholding of accurate information, is the policy chosen and expressed by Congress").

[FN196]. Should an underwriter erroneously assume his previous liabilities are funded, when in fact they are not, the underwriter may become insufficiently capitalized to cover additional claims arising under new policies.  In this event, the new policy holders will bear some, if not all, of the underwriting risk.

[FN197]. See supra text accompanying note 90.

[FN198]. Richards v. Lloyd's of London, 107 F.3d 1422, 1427 (9th Cir. 1997).

[FN199]. Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).

[FN200]. Id.

[FN201]. See discussion of Vimar supra pp. 269.  See generally Georges R. Delaume, Choice-of-Forum and Arbitration Clauses in the United States; A Judicial Crusade, 13 J. Int'l Arb. 81, 91 (1996) (stating, approvingly, that "party autonomy has reached unprecedented heights" and that "the remaining limitations on party autonomy are few and should not be a serious cause for concern"); Gilbert, supra note 173, at 614 (discussing Carnival Cruise Lines and noting that the "Supreme Court's .plain language' analysis . . . fails to" give force to Congress' intent); Michael Mousa Karayanni, The Public Policy Exception to the Enforcement of Forum Selection Clauses, 34 Duq. L. Rev. 1009, 1032 (1996) (noting that to invalidate a forum selection clause on a theory of statutory preemption, Congressional intent must be explicit, i.e., standing alone "the objectives of the legislative scheme" are inadequate to overcome presumptive validity) (emphasis added); G. Richard Shell, Contracts in the Modern Supreme Court, 81 Cal. L. Rev. 433, 433 (1993) (noting that with respect to the public policy exception, the modern court has been more faithful to the principle of freedom of contract than its predecessors, including the Lochner era court).  Cf. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 283 (1995) (O'Connor, J., concurring) (noting that "over the past decade, the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act . . . ."); Jean R.  Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court's Preference for Binding Arbitration, 74 Wash. U. L.Q. 637, 712 (1996) (calling on Congress to correct the Court's faulty interpretation of the FAA).

[FN202]. Justice O'Connor's concurring opinion in Vimar is instructive.  See Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528, 542 (1995) (O'Connor, J., concurring) (noting that, in at least one material respect, arbitration clauses differ from true forum selection clauses, in that the former "do not divest domestic courts of jurisdiction").

[FN203]. See Indussa Corp. v. S.S. Ranborg, 377 F.2d 200, 202 (2d Cir. 1967) (en banc).

END OF DOCUMENT