1996 WL 33485923 (9th Cir.)

For opinion see 135 F.3d 1289, 121 F.3d 565

United States Court of Appeals, Ninth Circuit.

Alan Richards, et al., Plaintiffs/Appellants, v.

Lloyd's of London, an unincorporated association, et al., Defendants/Appellees,

John R. NORTON, III, et al., Plaintiffs/Appellants, v.

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

Nos. 95-56467, 95-55747.

May 10, 1996.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA THE HONORABLE IRMA E. GONZALEZ

Plaintiffs'/Appellants' Opening Brief

Stephen A. Kroft, McDERMOTT, Will & Emery, 2049 Century Park East, Los Angeles, CA 90067-3208, (310) 277-4110

A. Ray Robbins, John H. Stephens, Robbins & Keehn, APC, 530 "B" Street, Suite 2400, San Diego, CA 92101, (619) 232-1700

Eugene I. Goldman, Robert E. Kohn, McDermott, Will & Emery, 1850 K Street, N.W., Suite 500, Washington, D.C. 20006-2296, (202) 887-8000, Counsel for Plaintiffs/Appellants

Note: Table of Contents page numbers missing in original document

*ii CONTENTS

CORPORATE DISCLOSURE STATEMENT ... i

TABLE OF CONTENTS ... ii

TABLE OF AUTHORITIES ... iv

STATEMENT OF JURISDICTION ... 1

STATEMENT OF ISSUES ... 2

STATEMENT OF THE CASE ... 3

I. Plaintiffs Seek Rescission And Damages For Lloyd's Illegal Sale Of Securities ... 3

II. The District Court Erroneously Dismissed The Action On The Basis Of Contractual Forum Selection Clauses ... 3

III. Statement Of Facts ... 5

A. The Lloyd's Common Enterprise ... 6

B. How Lloyd's Reinsurance Works ... 7

C. Plaintiffs Were Passive Investors ... 9

D. Plaintiffs Had No Significant Contact With England ... 10

E. Lloyd's Concealed Plaintiffs' Exposure To Asbestos And Pollution Liabilities ... 11

F. Lloyd's Presented The Choice Clauses For Signature In The United States ... 13

G. Subsequent Proceedings ... 14

SUMMARY OF ARGUMENT ... 15

REVIEW ABILITY AND STANDARD OF REVIEW ... 17

*iii ARGUMENT ... 19

I. The Anti-Waiver Statutes Nullify The Choice Clauses ... 19

A. Plaintiffs Would Have Rights And Remedies Against Lloyd's Under The 1933 And 1934 Acts In The Absence Of The Choice Clauses ... 19

B. The Choice Clauses Strip Plaintiffs Of All Their Rights Under Federal Securities Laws ... 20

C. The Choice Clauses Are Void Under The Anti-Waiver Statutes ... 22

D. The District Court Erred In Relying On Roby And Bonny ... 25

II. The Choice Clauses Are "Unreasonable" And Unenforceable Because They Violate Strong Public Policy ... 28

III. Lloyd's Choice Clauses Were The Product Of Fraud And Are Thus Unenforceable ... 34

A. Lloyd's Procured The Choice Clauses By Fraud ... 34

B. Plaintiffs' Fraud Allegations Should Have Been Resolved By Trial ... 36

IV. The Court Should Have Entered The Unincorporated Association's Default ... 39

CONCLUSION ... 40

STATEMENT OF RELATED CASES ...

PROOF OF SERVICE

ADDENDUM

*iv TABLE OF AUTHORITIES

Cases

Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143 (1987) ... 31

Aldabe v. Aldabe, 616 F.2d 1089 (9th Cir. 1980) ... 5, 18

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ... 17-18

Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993), cert. denied, 127 L. Ed. 2d 378 (1994) ... passim

Brass v. American Film Technologies, Inc., 987 F.2d 142 (2d Cir. 1993) ... 35

CBS Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563 (6th Cir. 1990) ... 37

CBS, Inc. v. Merrick, 716 F.2d 1292 (9th Cir. 1983) ... 35

Cange v. Stotler & Co., 826 F.2d 581 (7th Cir. 1987) ... 30

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) ... 18

Enron Oil Corp. v. Diakuhara, 10 F.3d 90 (2d Cir. 1993) ... 40

*Feigin v. Lloyd's, No. 95 CV 5541 (Colo. Dist. Ct., Denver Dec. 27, 1995) ... 15, 31

First Options v. Kaplan, 131 L. Ed. 2d 985 (1995) ... 18

Fox Midwest Theatres, Inc. v. Means, 221 F.2d 173 (8th Cir. 1955) ... 29

Gaines v. Carrollton Tobacco Bd. of Trade, Inc., 386 F.2d 757 (6th Cir. 1967) ... 29

In re GlenFed Sec. Litig., 11 F.3d 843 (9th Cir. 1993), vacated on reh'g on other grounds, 42 F.3d 1541 (9th Cir. 1994) ... 17, 35

Goodman v. Epstein, 582 F.2d 388 (7th Cir. 1978), cert. denied, 440 U.S. 939 (1979) ... 19

Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244 (9th Cir. 1994), cert. denied, 133 L. Ed. 2d 195 (1995) ... 30

Grunenthal GmbH v. Hotz, 712 F.2d 421 (9th Cir. 1983) ... 20

*v Hartford Fire Ins. Co. v. California, 509 U.S. 764, 125 L. Ed. 2d 612 (1993) ... 5

Hector v. Wiens, 533 F.2d 429 (9th Cir. 1976) ... 9

Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) ... 29

Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990), cert. denied, 499 U.S. 976 (1991) ... 21

Hooker v. HHS, 858 F.2d 525 (9th Cir. 1988) ... 17

*Jersild v. Aker, 766 F. Supp. 713 (E.D. Wis. 1991) ... 35

Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007 (1982) ... 5

In re King, 961 F.2d 1423 (9th Cir. 1992) ... 17

*Knott v. Botany Mills, 179 U.S. 69 (1900) ... 23, 24

Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416 (9th Cir. 1989), cert. denied, 496 U.S. 937 (1990) ... 17

Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972) ... 20

*Leslie v. Lloyd's of London, No. H-90-1907, 1995 U.S. Dist. LEXIS 15380 (S.D. Tex. Aug. 25, 1995) ... passim

*Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185 (9th Cir. 1986) ... 36-37, 39

In re Lloyd's of London, No. CD-96-12 (Mo. Securities Comm'n Feb. 28, 1996) ... 32

Lunardi v. Great-West Life Assur. Co., 44 Cal. Rptr. 2d 56, 64 (Cal. App. 1995) ... 35

M.G.J. Indus., Inc. v. Greyhound Fin. Corp., 826 F.Supp. 430 (M.D. Fla. 1993) ... 27

*M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) ... passim

McDermott Int'l, Inc. v. Wilander, 498 U.S. 337 (1991) ... 17

*Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ... passim

*vi *Moseley v. Electronic & Missile Facilities, 374 U.S. 167 (1963) ... 16, 36-39

Northern Alaska Environmental Center v. Lujan, 961 F.2d 886 (9th Cir. 1992) ... 18

Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273 (9th Cir. 1984) ... 18

Pinter v. Dahl, 486 U.S. 622 (1988) ... 20, 29

*Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) ... 27, 37-38

Red Bull Assocs. v. Best Western Int'l, 862 F.2d 963 (2d Cir. 1988) ... 27

Redel's. Inc. v. General Elec. Co., 498 F.2d 95 (5th Cir. 1974) ... 29

Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.), cert. denied, 506 U.S. 1021 (1992) ... 25, 31, 36

Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.), cert. denied, 126 L. Ed. 2d 333 (1993) ... passim

*Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989) ... 22, 24

Rush v. Oppenheimer & Co., 681 F. Supp. 1045 (S.D.N.Y. 1988) ... 37

SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476 (9th Cir.), cert. denied, 414 U.S. 821 (1973) ... 19

SEC v. Ralston Purina Co., 346 U.S. 119 (1953) ... 22

SEC v. W.J. Howey Co., 328 U.S. 293 (1946) ... 9, 19

*Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) ... passim

Shearson/American Express v. McMahon, 482 U.S. 220 (1987) ... 22

Spradlin v. Lear Siegler Management Servs. Co., 926 F.2d 865 (9th Cir. 1991) ... 17

*Stewart Organization v. Ricoh Corp., 487 U.S. 22 (1988) ... 26, 27

*vii United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29 (1987) ... 24, 30

United States v. Rahm, 993 F.2d 1405 (9th Cir. 1993) ... 18

*Vimar Seguros v Reaseguros, S.A. v. M/V Sky Reefer, 132 L. Ed. 2d 462 (1995) ... 23, 24

*Walker v. KFC Corp, 728 F.2d 1215 (9th Cir. 1984) ... 34-35, 38

Webster v. Omnitrition Int'l, Inc., 79 F.3d 776 (9th Cir. 1996) ... 20

Weidner Communications, Inc. v. Al Faisal, 859 F.2d 1302 (7th Cir. 1988) ... 38

Wimsatt v. Beverly Hills Weight Loss Clinics Int'l, Inc., 32 Cal. App. 4th 1511 (1995) ... 25

Statutes

Federal Arbitration Act, 9 U.S.C. §§ 10-11 ... 24

Clayton Antitrust Act, Section 4(a), 15 U.S.C. § 15(a)(1995) ... 31

Securities Act of 1933, Section 2(1), 15 U.S.C. § 77b(1) ... 9

*Securities Act of 1933, Section 5, 15 U.S.C. § 77e ... 20

*Securities Act of 1933, Section 12, 15 U.S.C. § 77l(a) ... 20, 22, 27

*Securities Act of 1933, Section 14, 15 U.S.C. § 77n ... 15, 19, 22

*Securities Act of 1933, Section 15, 15 U.S.C. § 77o ... 21

Securities Exchange Act of 1933, Section 17(a)(2), 15 U.S.C. § 77q(a)(2) ... 30

Securities Act of 1933, Section 22, 15 U.S.C. § 77v ... 1

Securities Exchange Act of 1934, Section 3(a)(10), 15 U.S.C. § 78c(a)(10) ... 9

*viii *Securities Exchange Act of 1934, Section 10(b), 15 U.S.C. § 78j(b) ... 21

*Securities Exchange Act of 1934, Section 20(a), 15 U.S.C. § 78t ... 21

Securities Exchange Act of 1934, Section 27, 15 U.S.C. § 78aa ... 1

*Securities Exchange Act of 1934, Section 29(a), 15 U.S.C. § 78cc(a) ... 15, 19, 22

*Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970 (Title IX), 18 U.S.C. § 1964(c)(1994) ... 1, 31

28 U.S.C. § 1291 ... 1

28 U.S.C. § 1331 ... 1

28 U.S.C. § 1332(a) ... 1

28 U.S.C. § 1367(a) ... 1

28 U.S.C. § 1404(a) ... 26-27

Carriage of Goods by Sea Act, 46 U.S.C. App. §§ 1300, et seq. ... 23

Carriage of Goods by Sea Act, Section 3(8), 46 U.S.C. App. § 1303(8) ... 24

Cal. Corp. Code § 24001 ... 39

California Corporate Securities Act, Cal. Corp. Code § 25701 ... 25

Treaties

Convention of the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, 20 U.S.T. 361, T.I.A.S. No. 6638, reprinted in Martindale-Hubbell International Law Digest, Selected International Conventions (1996) at IC-1 ... 4

Regulations

SEC Rule 405, 17 C.F.R. § 230.405 ... 21

*SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 ... 21, 27, 29

*ix Miscellaneous

Restatement (Second) of Conflict of Laws § 80 cmt. b (1988 Rev.) ... 27

*Restatement (Second) of Torts § 551(2)(e) cmt. l (1977) ... 34, 35

Fed. R. App. P. 4 ... 1

Fed. R. Civ. P. 9(b) ... 36

Fed. R. Civ. P. 12(b)(3) ... 4, 17

Fed. R. Civ. P. 12(b)(6) ... 4, 15, 17

Fed. R. Civ. P. 55 ... 40

Fed. R. Civ. P. 60(a) ... 39

Local Rule 16.3(n)(4)(S.D. Cal.) ... 39

*1 STATEMENT OF JURISDICTION

These consolidated appeals involve claims by 609 individual plaintiffs who invested in the Lloyd's of London insurance enterprise. Plaintiffs claim that Lloyd's engaged in a scheme to defraud thousands of United States investors through the sale of investment contracts in the United States. Subject matter jurisdiction arises under the Securities Act of 1933 (the "1933 Act"); the Securities Exchange Act of 1934 (the "1934 Act"); and the Racketeer Influenced and Corrupt Organizations ("RICO") chapter of the Organized Crime Control Act of 1990. See 15 U.S.C. §§ 77v, 78aa; 18 U.S.C. § 1964(c) (1994); and 28 U.S.C. § 1331. Jurisdiction of plaintiffs' state law claims is founded upon supplemental and diversity jurisdiction. See 28 U.S.C. §§ 1367(a), 1332(a).

The appeals are from orders of dismissal that enforced agreements waiving plaintiffs' rights under federal and state law and requiring plaintiffs to pursue any claims arising from their investments in English courts under English law. In Richards. et al. v. Lloyd's of London, et a1. (No. 95-55747), the judgment was entered on May 1, 1995 and notice of appeal was timely filed on May 30, 1995. (ER103; ER112). The district court denied plaintiffs' post-judgment motions on August 4, 1995, and plaintiffs timely filed their amended notice of appeal on August 30, 1995. (ER134; E136). See Fed. R. App. P. 4(a)(1), (4). The judgment of dismissal in Norton, et al., v. Lloyd's of London, et al., (No. 95-56467) was entered on September 25, 1995, and the notice of appeal was timely filed on October 5, 1995. (N-ER14; N-ER15). [FN1] Appellate jurisdiction arises under 28 U.S.C. § 1291.

N1. References to the Richards Appellants' Excerpts of Record are identified as "ER," the Clerk's Record as "ER," each followed when appropriate by the page and line numbers, exhibit and/or tab designations and paragraph numbers. References to the Norton Appellants' Excerpts of Record are identified as "N-ER" and the Clerk's Record as "N-ER." The parties in Norton stipulated "that all pleadings and other documents filed and all evidentiary materials lodged with the Court in Richards shall be deemed filed and lodged, and a part of the record, in this action." N-ER14 at 2:10-13. References to the documents submitted with plaintiffs' Motion for Judicial Notice will be identified by "MJN" followed by the exhibit designation, page, line and/or paragraph number.

*2 STATEMENT OF ISSUES

Plaintiffs appeal the district court's ruling that their rights and remedies under United States laws were effectively waived by contractual forum selection and choice-of-law clauses (the "Choice Clauses") mandating that claims arising from their membership in Lloyd's be adjudicated in English courts under English law. The district court dismissed plaintiffs' claims solely in reliance on the Choice Clauses. The specific questions presented for review are:

1. Whether the Choice Clauses - which operate in tandem to deprive plaintiffs of all their rights under the 1933 and 1934 Acts - violate the statutory prohibitions against waiver of compliance with those Acts with respect to securities offered and sold in the United States.

2. Whether the district court erred in following precedent from other circuits holding that the congressionally mandated anti-waiver provisions of the 1933 and 1934 Acts may be overridden by judicial notions of policy and comity.

3. Whether the Choice Clauses - which deprive plaintiffs of all their rights under the laws of the United States and of the individual states - are unreasonable and thus unenforceable because they violate public policy.

4. Whether the Choice Clauses are unreasonable and thus unenforceable because they were obtained through fraud perpetrated within the United States to shield Lloyd's from liabilities under the laws of the United States and the individual states.

5. Whether the district court erred in summarily disposing of appellants' specific allegations and uncontroverted evidence that the Choice Clauses were the product of fraud, without permitting discovery or holding a trial on those allegations.

6. Whether the district court abused its discretion in denying plaintiffs' request for entry of default against defendant Lloyd's of London, an unincorporated association.

*3 STATEMENT OF THE CASE

I. Plaintiffs Seek Rescission And Damages For Lloyd's Illegal Sale Of Securities

Plaintiffs are individual residents of the United States who were solicited in the United States to purchase membership interests in Lloyd's. Upon becoming members, plaintiffs (called "Names" by Lloyd's) were further solicited in the United States to purchase participation interests in Lloyd's insurance syndicates. The complaints - supported by uncontroverted evidence - allege that Lloyd's committed widespread fraud and deception in connection with its offering and sale of these "investment contract" securities in the United States, not only during the initial recruitment of plaintiffs as Names but also during Lloyd's later solicitations for annual investments in Lloyd's syndicates. [FN2] (ER4 at 88:1-20, 89:8 to 92:11). Lloyd's further violated the 1933 Act and various state securities laws by selling these securities without either registering the offering (which would have required detailed additional disclosure of unfavorable financial information) or complying with an applicable exemption from registration.

FN2. As further discussed below, the initial membership agreements and subsequent annual agreements pledging plaintiffs' capital to underwrite Lloyd's syndicates each constitute "investment contracts" and hence are securities under the 1933 and 1934 Acts. See discussion infra, note 8 and p. 19.

Plaintiffs assert claims under the federal securities and RICO statutes and state securities laws. They also claim that Lloyd's violated state law prohibiting fraudulent misrepresentation and concealment. They seek rescission of their investment contracts with Lloyd's, damages, and injunctive and declaratory relief.

II. The District Court Erroneously Dismissed The Action On The Basis Of Contractual Forum Selection Clauses

Plaintiffs sued two defendants: The Corporation of Lloyd's, also known variously as the Society of Lloyd's and as the Society and Council of Lloyd's (the "Society"); and Lloyd's of London, an unincorporated association consisting of the various Lloyd's entities responsible for managing and operating the Lloyd's insurance enterprise (the "Unincorporated Association"). Together these defendants are referred to herein as "Lloyd's." The Society moved to dismiss *4 the complaint based upon the forum selection clause that the Society inserted in 1986 into a new standard-form General Undertaking (the "1986 General Undertaking") executed by plaintiffs. (ER4, Ex. 1,¶¶ 2.1 and 2.2). The 1986 General Undertaking designated exclusive jurisdiction in the courts of England over disputes relating to membership in Lloyd's and specified that English law would govern all such disputes. Names, including those who had invested in previous years, were required to sign this substitute General Undertaking as a condition of investing in Lloyd's insurance syndicates after 1986.

The complaints allege that the Choice Clauses were procured through fraud, in furtherance of a scheme to saddle plaintiffs with hidden liabilities plaguing Lloyd's. They further allege that these provisions, operating in tandem, violated the anti-waiver provisions of the United States securities laws by stripping plaintiffs of all their rights and remedies under the 1933 and 1934 Acts. (ER4 at 86:17 to 87:2). Lloyd's moved to dismiss, contending (among other things) that the Choice Clauses requked plaintiffs to sue in England under English law.

Despite unrefuted evidence offered in support of the plaintiffs' allegations, the district court granted the motion to dismiss. The court found it unnecessary to decide whether the motion should be considered under Rule 12(b)(3) (improper venue) or Rule 12(b)(6) (failure to state a claim upon which relief can be granted) of the Federal Rules of Civil Procedure. (ER102 at 10-11). This procedural confusion led the court to adopt its own form of hybrid review under which the court considered the pleadings and the evidence together. The court's dismissal, which relied solely on the Choice Clauses, denied plaintiffs any discovery or evidentiary hearing on their claims that the Choice Clauses were procured by fraud.

The Unincorporated Association was served pursuant to the Hague Convention [FN3] but never appeared in the action. Nevertheless, the court clerk refused plaintiffs' application for a default *5 order (ER75), and the district court denied (as "moot") plaintiffs' motion for an order directing entry of the default. (ER134 at 25 to 26). [FN4]

FN3. Convention of the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, 20 U.S.T. 361, T.I.A.S. No. 6638, reprinted in Martindale-Hubbell International Law Digest. Selected International Conventions (1996) at IC-1.

FN4. The court apparently intended its statement regarding mootness as a ruling that the Unincorporated Association was also entitled to benefit from the Choice Clauses, and thus the court would exercise its discretion to deny the request. Cf. Aldabe v. Aldabe, 616 F.2d 1089, 1092-93 (9th Cir. 1980) (court may deny motion for judgment by default). If this Court determines that the Choice Clauses are unenforceable then, of course, the Names' request for entry of default would no longer be "moot."

III. Statement Of Facts

The facts alleged in the complaint were not disputed, [FN5] and Lloyd's did not offer evidence to contradict plaintiffs' documentary submissions. [FN6] Those allegations and the evidence show that Lloyd's insiders recognized in the early 1980s that Lloyd's would soon face an avalanche of large policy claims arising from tort liability for asbestos exposure and environmental pollution. (Asbestos Fraud Evidentiary Set, ER63). Under standard policies of liability insurance issued throughout the insurance industry, coverage extended to claims of harm that "occurred" during the relevant policy period, even though the harm might not manifest itself until many years later. [FN7] These "occurrence" basis policies generate "long tail" liabilities - a term that describes the long duration of the insurance risk. Lloyd's first reinsured these risks several decades prior to 1980 under policies - with no aggregate coverage limits - which long predated the investments by American Names. (ER4 at 52:10 to 57:24, and 67:12 to 69:15).

FN5. Lloyd's advised the district court that some unidentified allegations of the complaint "are incorrect" and that "the conclusions [plaintiffs] draw from selected facts are vigorously disputed." (ER7 at 5 n.6).

FN6. Lloyd's supported its motion to dismiss with a request for judicial notice of various documents. (CR8). Lloyd's presented the declarations of an English legal expert concerning plaintiffs' potential rights and remedies under English law (CR8, Exs. 3.7, 3.8, 3.9), together with copies of English statutes and judicial decisions (CR8, Exs. 1.1, 1.3, 1.4, 2.1). Lloyd's also asked the court to take notice of judicial decisions and pleadings in cases outside England that had enforced the Choice Clauses. (CR8, Exs. 1.2, 1.5, 1.6, 3.1, 3.2, 3.3, 3.4). Finally, Lloyd's submitted letters from the staff of the Securities and Exchange Commission noting that the Choice Clauses had been enforced by certain courts (CR8, Ex. 3.11) and stating that Lloyd's had communicated with the staff. (CR8, Ex. 3.10).

FN7. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 125 L. Ed. 2d 612, 622-24 (1993); Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034, 1046 (D.C. Cir. 1981). cert. denied,. 455 U.S. 1007 (1982).

*6 After pollution and asbestos liability claims under these policies had begun to mount hi the late 1970s, Lloyd's set about in the 1980s recruiting plaintiffs and other United States residents to invest in Lloyd's and its syndicates, where they were saddled with hidden risks through Lloyd's reinsurance process. (ER4 at 53:16 to 54:13; ER69 at 3:27 to 4:2, and 4:11-22).

A. The Lloyd's Common Enterprise

A short description of Lloyd's structure and operations is necessary to understand the devices that Lloyd's used to perpetrate its fraud. Lloyd's is a collection of entities that operates as a common enterprise for underwriting and marketing insurance. The Society is the central administrative body of Lloyd's; it is governed by the Council of Lloyd's, established by the Lloyd's Act of 1982 to exercise overall responsibility and control over the entire Lloyd's insurance business. (ER8, Ex. 2.1 at 227-33; ER71, Ex. 3, KK 2.2, 2.3). The Council enacts comprehensive "Byelaws" to govern and regulate the entities who conduct Lloyd's insurance business. (ER71, Ex. 2 at 10; ER8, Ex. 2.1 at 229). The Council is dominated by a majority of insider "Working Names" - top executives of the Lloyd's entities comprising the enterprise. (ER71, Ex. 2 at O1l & Ex. 3, 1 2.3; ER4 at 12:15-20; ER69 at 3:27 to 4:2).

Lloyd's groups individual Names into syndicates, each of which issues insurance policies to cover particular risks. (ER71, Exs. 3 & 10). Lloyd's requires Names to accept unlimited liability for their share of any insurance losses under these policies; in return, the Names receive the right to share in any syndicate profits. (ER71, Ex. 2 at 4, Ex. 3, ¶¶ 1.1, 11). Syndicates are managed and operated by a Managing Agent, whom the Council approves and controls. (ER4 at 17:1-11; ER69 at 3:27 to 4:2). Each Name must invest through a Members' Agent, an entity that is also approved and controlled by the Council. (ER71, Ex. 3, ¶¶2.7 & 2.8; ER4 at 17:22 to 18:15; ER69 at 3:27 to 4:2). Many Members of the Council are executives of Members' Agents and Managing Agents. (ER4 at 12:15-25; ER71, Ex. 3 at 2).

The Society follows the practice of "mutualization" of syndicate losses, (ER4 at 39:4-13; ER69 at 3:27 to 4:2). Under this practice, the Council of Lloyd's from time to time assesses *7 "levies" on Names to cover the losses of Names in other syndicates who "are unable to pay their losses" or "intend to withhold payment of their losses." (ER73, Ex. 2). Lloyd's assured state insurance regulators, moreover, that the Society itself would guarantee the liabilities of individual Names. (ER67, Tab F, Ex. 7 at 5).

The Society urged the district court to regard the Council and the other entities within Lloyd's as nothing more than "regulators" of a "market" of competing syndicates analogous to the New York Stock Exchange. Regardless of the Society's terminology, Lloyd's is a collection of entities under common control that are together a single self-regulating business enterprise operating under the renowned name of "Lloyd's of London."

B. How Lloyd's Reinsurance Works

Lloyd's defrauded plaintiffs by manipulating its reinsurance practices to hide massive losses, as discussed below. Each syndicate issues policies during a single calendar year, known as the "year of account" or "syndicate year." (ER71, Ex. 3, ¶ 10). The syndicate receives policy premiums only during the year of account, but under Lloyd's three-year accounting system each syndicate remains "open" for the purpose of receiving policy claims for two additional years. (ER4 at 29:24 to 30:2). Names who are members of the syndicate remain at risk during these additional two years for any losses covered by policies issued by the syndicate.

At the end of three years, however, the syndicate is normally "closed." "Closing" does not terminate coverage under the policies issued by the syndicate; rather, closing is a transaction that allows Names to settle their profits and losses by ending their personal exposure to the insurance risks. (ER71, Ex. 3, ¶ 11). At the time of close, reserves are established for known claims, and the potential for future unreported claims is determined by the professional underwriters employed by the Managing Agents. (ER4 at 30:3-21; ER69 at 3:27 to 4:2). Even after closing, further claims under the syndicate's policies are often reported.

Upon close of the syndicate, the risk of all future claims is transferred to a successor-year syndicate in exchange for payment of a lump-sum reinsurance premium by the syndicate being *8 closed. The successor syndicate insures the Names in the closed syndicate against policy claims made after closing. This process is known as Reinsurance to Close ("RITC"). (ER4 at 29:24 to 30:10; ER71, Ex. 3, ¶ 10). The Names in the closed syndicate make a profit if the total of all policy premiums received by their syndicate is greater than the amounts paid out by the syndicate to (i) satisfy claims, and (ii) pay the RITC reinsurance premium. (ER71, Ex. 3, ¶ 11).

Some syndicates must remain open. When a syndicate's future liabilities cannot reasonably be predicted, a successor syndicate cannot determine the amount of a reasonable RITC reinsurance premium. In such circumstances, the Council requires the syndicate to remain open in order to allow claims against the syndicate to "run off" over a period of years. (ER4 at 31:23 to 32:21; ER71, Ex. 3, ¶ 11). The claims then must be paid by the Names of the syndicate being run off, without the benefit of RITC. Consequently, the decision as to whether a syndicate is put into run-off determines which Names will be liable for any (as yet unknown) liabilities on future claims. (ER4 at 31:23 to 32:21; ER69 at 3:27 to 4:2).

Because Lloyd's customarily closed each syndicate after three years, many latent claims dating back to decades-old policies were reinsured repeatedly. As discussed below, the belated receipt of such claims could be devastating. When such latent claims were made against plaintiffs' syndicates, plaintiffs found that their syndicates had disproportionately high losses and woefully inadequate reserves (i.e., accumulated reinsurance premiums) to cover those losses. As discussed below, Lloyd's insiders knew these latent asbestos and pollution liabilities would be maturing (ER63, Tab B, Exs. 4, 6, 11 and 12) and used the information to manipulate who would be stuck with the concealed latent claims. (ER69, 4:11-22 and Ex. 3).

By this manipulation Lloyd's assigned hidden asbestos and pollution risks disproportionately to syndicates underwritten by plaintiffs and other outsiders, especially Names from North America. (ER4 at 22:23 to 23:2, 53:16- 21, 54:9-13,69:26 to 70:5, 74:17-24; ER69 at 4:11-22, and Ex. 3). The 609 plaintiffs in the instant cases now face more than $800 million *9 in losses, mostly from pollution and asbestos liabilities plaguing syndicates that cannot be closed, (ER69 at 4:23-27, 5:11 to 6:4, and Ex. 6).

C. Plaintiffs Were Passive Investors

To become a Name, a person must pay an entrance fee to the Society and deposit assets or post a letter of credit in an agreed amount. (ER4 at 19:17-19; ER69 at 3:27 to 4:2; ER71, Ex. 3, ¶¶ 7.1 - 7.3). Lloyd's prohibited plaintiffs and other "External Names" from any involvement with the operation or management of Lloyd's business. (ER4 at 73:16-28; ER71, Ex. 3 at 3). Subject to the direction of the Council, the Members' Agent completely controls the Name's underwriting affairs within Lloyd's. (ER71, Ex. 2 at 3). The Managing Agents, in turn, manage the operations of the syndicates, also subject to the direction of the Council. (ER4 at 26:5-20; ER71, Ex. 3 at 3).

Names do not issue policies; Names do not determine how much to charge in premiums for particular risks; Names do not meet policyholders or evaluate their claims. Plaintiffs' only activity was to receive and answer correspondence from their Members' Agents designating - on an annual basis - the syndicates for each Name and proposing the levels of participation for investment each syndicate year. (ER55 at 6:24 to 7:4; ER65 at 6:8-16). The success or failure of each Name's investment thus depended on the efforts of others in the Lloyd's enterprise, including Member's Agents, Managing Agents and, ultimately, the Council. (ER73 at 5:6-25). [FN8]

FN8. Because the Names' contracts called for others to manage their combined insurance risks in the hope of securing profit, the various agreements were "investment contracts" that are subject to federal regualtion as "securities" under section 2(1) of the 1933 Act and section 3(a)(10) of the 1934 Act. 15 U.S.C. §§ 77b(1), 78c(a)(10). See SEC v. W.J. HowevCo. 328 U.S. 293, 299-301 (1946); see also Expert Declaration of Professor Robert J. Haft of the Georgetown University Law Center (initial membership in Lloyd's and annual participation in a particular insurance syndicate both constitute "securities") (ER73). The district court did not address this issue, and the Society did not dispute that the Names' contracts were

*10 D. Plaintiffs Had No Significant Contact With England

Lloyd's recruited all but a handful of the plaintiffs - 603 of 609 investors - in the United States using face-to-face meetings, telephone calls, correspondence and other means of solicitations. Acting at the direction and control of the Society, the Members' Agents hosted sales presentations (followed by elaborate banquets) and organized face-to-face meetings in the homes and offices of potential investors - all in the United States. Members' Agents also traveled throughout the United States encouraging Names to increase their underwriting. (ER66 at 7:3-20, Tab B; ER4 at 41:26 to 42:4). Lloyd's paid commissions and referral fees to U.S. securities brokerage firms and hired other recruiters in the United States to solicit new Names. (ER66 at 6:14 to 7:21, and Tab B; ER4 at 41:26 to 42:22). Plaintiffs executed all documents necessary to become or remain members in Lloyd's - including the 1986 General Undertaking containing the Choice Clauses - in the United States. (ER55 at 6:3- 17; ER65 at 5:18-26).

New Names then attended a brief ceremony in London for a formalistic initiation called a ROTA Committee meeting. The ROTA is a committee of members of the Council of Lloyd's. (ER4 at 44:19-25; ER71, Ex. 3, ¶ 6.5). For most plaintiffs, this occasion was their only activity in England related to Lloyd's. (E.g. ER66, Tab A), The plaintiffs received and signed the General Undertakings and other required documents in the United States, and returned them to Lloyd's before going to England. (ER66 at 5:15 to 6:12 and, e.g. Tab A). The United States District Court for the Southern District of Texas has specifically concluded that Lloyd's purpose in holding the ROTA ritual in London was to "attempt[] to circumvent the U.S. securities laws through the structure of its transactions." Leslie v. Lloyd's of London, No. H-90-1907, 1995 U.S. Dist. LEXIS 15380, *63 (S.D. Tex. Aug. 25, 1995) (MJN, Ex. 2 at 34).

*11 E. Lloyd's Concealed Plaintiffs' Exposure To Asbestos And Pollution Liabilities

Lloyd's bears about 30% of the overall asbestos and pollution liability in the United States, approximately $42 billion. (ER69 at 6:13-24) [FN9] In the early 1980s, Lloyd's understood that asbestos liability for many of its syndicates was unquantifiable. (ER63, Tab B at 3:22-28, and Ex. 4). American counsel warned Lloyd's in 1979 that they anticipated asbestos claims in the range of $40 to $80 billion. (ER63 at 16:19-28 and Tab C, Ex. 1 at 01, 016). Lloyd's recognized that the asbestos problem was serious enough to warrant creating an Asbestos Working Party in 1980. (ER63 at 6:18 to 7:3 and Tab A, Ex. 6, 1.1, 4.15). in January 1982, Lloyd's American counsel reported to Lloyd's that asbestos-related reinsurance questions would present "major problems" and predicted 20,000 asbestosis deaths annually. (ER63 at 16:9-15 and Tab B, Ex. 12).

FN9. These figures represent estimates as of March 1995. Mature long tail liabilities had been growing at the rate of 20% annually when these estimates were made. (Id.)

Despite knowing the potentially enormous magnitude of the problem, Lloyd's allowed syndicates to reinsure these long tail liabilities into later syndicate years through RITC rather than requiring the syndicates go into run-off immediately. In November 1981, when Lloyd's panel of auditors met to address the asbestosis problem in preparation for the 1981 year-end audit, the chairman of Lloyd's Audit Committee gave specific instructions that the auditors were not to evaluate potential asbestos claims in conducting their examination. (ER63, Tab B at 3:6-10 and Ex. 1). The panel consisted of accounting firms specifically approved and authorized by Lloyd's, and the Council's Deputy Chairman attended the meeting. (Id.; ER63, 7:4-20). A substantial number of syndicates closed the 1979 year of account in the spring of 1982 (as of 1981 year end), notwithstanding a February 1982 letter from the Lloyd's panel of auditors stating that reserves could not be established because asbestos liabilities were unquantifiable. (ER63, Tab B at 3:22-28 and Ex. 4). [FN10]

FN10. ER63, Tab B is the declaration of Kenneth Randall, who was Manager of Lloyd's Audit Department and Head of Regulatory Services in the early 1980s.

*12 The auditors' February 1982 letter was followed by a series of meetings addressing the auditors' "grave concern" about establishing reserves for asbestos claims and the propriety of RITC. (ER63, Tab B, 5:1-4, and Ex. 10, 1 4). Incredibly, Lloyd's concluded these meetings by deciding not to resolve the matter, leaving the choice whether to close the 1979 year of account to the Managing Agents of each syndicate. (ER63, Tab B, Ex. 6). Lloyd's Deputy Chairman acknowledged that the Names should be informed of their syndicates' "involvement with Asbestosis claims and the manner in which then: syndicates' current and potential liabilities have been covered." (Id.) However, none of the 1979 syndicates was left open to run off, and none of the plaintiffs was advised that (i) Lloyd's had allowed unquantifiable losses to be reinsured by new syndicates, or (ii) he or she, as a member of a reinsuring syndicate, would be liable for these unquantifiable reinsured risks. (ER55 at 4:4-23; ER65 at 3:19 to 4:11). At precisely the same time (i.e., in early 1982), the Society was seeking enactment of the Lloyd's Act of 1982, which Parliament passed in July of that year to grant the Society absolute immunity from damages liability except upon proof of "bad faith." (ER63 at 12:8-13; ER8, Ex. 2.1 at 239; ER72 at 3:25 to 4:14). As a result of Lloyd's active concealment, Lloyd's was able to hide the potential losses until after it had secured immunity for the Society under English law. Indeed, a Parliamentary inquiry has recently confirmed that Lloyd's used deception to prevent External Names (such as plaintiffs) from learning that Lloyd's insiders had concealed asbestosis-related losses. (ER119, Attachment 1, ¶¶ 24-26). [FN11]

FN11. The Parliamentary report noted that "insiders at Lloyd's certainly took the problem of asbestos related losses seriously in the early 1980s, as they authorized and participated in the Asbestosis Working Party in 1982.... [Significantly the conclusions of the Working Party were not revealed to external Names." (ER119, Attachment 1, ¶ 25).

The magnitude of the crisis facing Lloyd's continued to increase in the mid-1980s. In March 1985, Lloyd's American lawyers warned the chairman of Lloyd's Asbestos Working Party of "serious problems" from asbestos claims that "would undoubtedly be far in excess of anything the market [i.e., Lloyd's]" had experienced before. (ER63, Tab C, Ex. 3). Yet this *13 too was concealed from the Names. Lloyd's obtained another legal immunity in 1986, the same year the Choice Clauses were inserted in the General Undertaking, when the Financial Services Act of 1986 gave the Society, Members' Agents and Managing Agents a special exemption from English securities regulation. (ER72 at 4:16 to 6:5).

F. Lloyd's Presented The Choice Clauses For Signature In The United States Without Disclosing How They Operated To Shield Lloyd's From Liability

When Lloyd's inserted the Choice Clauses in the 1986 General Undertaking, it knew full well that it had concealed long tail liabilities facing the Names' syndicates. The only material change in the 1986 agreement from the previous General Undertaking was the requirement that disputes involving Names' membership or underwriting be resolved in England under English law. (Compare Exhibits 1 and 2 attached to the complaint; see ER4, Ex. 1 at ¶¶ 2.1 and 2.2)).

The Council directed Members' Agents to send the 1986 General Undertaking to existing Names for execution in the United States at their places of residence. (ER4 at 82:13-17; ER66, Tab C [Bendhem Decl. Ex.]) ER55-62 (plaintiffs' declarations at 2:5-10)). The plaintiffs who were already Names (the "Group I" plaintiffs) were told by their Members' Agents that they had to sign to continue underwriting. New Names joining after 1986 (the "Group II" plaintiffs) were told that signing was necessary to commence underwriting. (ER55 at 2:5-19; ER65 at 2:5-15).

Lloyd's presented the 1986 General Undertaking on a take-it-or-leave-it basis, with no explanation of its legal effect and no opportunity to negotiate its terms. (ER55 at 2:11-19; ER65 at 2:5-15). Lloyd's concealed from the Group I plaintiffs that, by signing the new General Undertaking, they were waiving existing claims they otherwise could bring against Lloyd's for earlier violations of United States fraud and securities laws. (ER4 at 76:13 to 77:11; ER55 at 4:4 to 5:26). Lloyd's concealed from all plaintiffs, moreover, that the General Undertaking itself was an integral and necessary part of a scheme to saddle External Names (including plaintiffs) with hidden long tail risks. (Id.; ER65 at 3:19 to 5:13). Plaintiffs were not told that English law would preclude their claims for securities violations and fraudulent concealment, or that the Society had statutory immunity under the Lloyd's Act of 1982; that Lloyd's has a *14 special exemption from English securities laws; or that English common law applies the doctrine of caveat emptor, which imposes no duty to disclose material facts within the seller's exclusive knowledge absent a fiduciary relationship. (ER55-62 (Group I declarations at 2:19-28); ER65 at 3:19-21, 5:7- 13; ER72 at 3:10 to 8:25; ER116, Ex. 1 at 2:7-13). [FN12]

FN12. Many of the Members' Agents provided very misleading statements when transmitting the General Undertaking. Some advised, for example, that the Names already were required to sue hi English courts under English law; others said that an explanatory memorandum would follow (none was sent), or that the General Undertaking was a shortened form of the previous undertaking. (ER66 at 7:22 to 8:21 and Tab C). None of these statements was true. (Id.; ER4 at 79:23 to 80:2, Exs. 1 & 2).

Nor, as noted above, did Lloyd's inform Names of the potential size of asbestos and pollution liabilities. Had plaintiffs been told the true facts about their investments and the lack of recourse against Lloyd's in England they would not have signed the 1986 General Undertaking. (ER55 at 8:12 to 9:2; ER65 at 7:24-8:8). See also Leslie v. Lloyd's of London, supra (MJN, Ex. 2 at 51).

G. Subsequent Proceedings

Several significant events have occurred since the district court's opinion and order dismissing the complaint - which plaintiffs ask this Court to judicially notice. In a 62-page opinion, the United States District Court for the Southern District of Texas concluded that Lloyd's Choice Clauses were the product of a fraudulent scheme to deprive American Names of recourse under United States law. Leslie v. Lloyd's of London, supra. The Leslie court "conducted extensive evidentiary hearings and developed considerable familiarity with... the facts," (id. at 60) and found that the plaintiff had been fraudulently induced to sign the 1986 General Undertaking in connection with the concealment of potential asbestos and pollution losses. (Id. at 49- 52). The court also concluded that the Choice Clauses violate the anti-waiver *15 provisions of the federal securities laws. (Id. at 53-54). The plaintiff's allegations in Leslie were substantially similar to those in the instant cases. [FN13]

FN13. It is clear from the Leslie opinion that the court went beyond the pleadings and considered all the evidence before it found the Choice Clauses unenforceable. (Id. at 6, 18, 48 (noting the "evidence in the record"). The Leslie court also reviewed the underlying merits of the securities and other claims and found them sufficient to state a claim under Rule 12(b)(6). (Id. at n. 16).

Following an evidentiary hearing in an enforcement action brought by the Colorado Securities Commissioner, another court found that Lloyd's withheld material facts from the Colorado Names and violated securities registration and anti-fraud provisions. Feigin v. Lloyd's, No. 95 CV 5541 (Colo. Dist. Ct. - Denver Dec. 27, 1995) (granting preliminary injunction) (MJN Ex. 5 at 15:11- 21). The Feigin court concluded "that Lloyd's has failed ... to disclose the quantity and nature of the asbestos- and pollution-related claims in various underwriting syndicates in which the Colorado Names have and are presently participating." (MJN Ex. 5 at 15). [FN14]

FN14. Securities officials in Arizona, California, Illinois, Missouri, Pennsylvania, Tennessee, Virginia and West Virginia have also issued cease and desist orders and/or commenced enforcement action against Lloyd's to enjoin and redress violations of anti-fraud and registration requirements under their states' securities laws. (MJN Exs. 3-4, 7-13).

SUMMARY OF ARGUMENT

The Choice Clauses are unenforceable as to plaintiffs' federal securities claims because they contravene the statutory anti-waiver provisions of the 1933 and 1934 Acts. Those statutes provide that any contractual provision waiving compliance with the securities laws is "void." The Choice Clauses require Names to proceed in English courts under English law. Because English courts applying English law will not enforce the rights of United States residents under the 1933 and 1934 Acts, the Choice Clauses operate as a waiver of those rights. Congress has precluded this result. 15 U.S.C. §§ 77n, 78cc(a).

As to all of the plaintiffs' federal and state statutory claims, moreover, the Choice Clauses are unenforceable for a separate and independent reason: "enforcement would *16 contravene a strong public policy of the forum in which suit is brought." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 15 (1972). Under Bremen, courts may not enforce private forum selection agreements that are "'unreasonable' under the circumstances." Id. When contractual forum selection and choice-of-law clauses work "in tandem" to subvert public policy by waiving statutory remedies, they are unreasonable as a matter of law - even in the absence of an anti-waiver statute - and cannot be enforced. Mitsubishi Motors Corp. v. Soler Chrysler-Plvmouth. Inc., 473 U.S. 614, 637 n.19 (1985).

The Choice Clauses are unenforceable with respect to all of the plaintiffs' claims - statutory and common law - for a further, equally important reason: they were induced by fraud. Fraud is an independent basis for finding a forum selection agreement "unreasonable." Bremen. 407 U.S. at 15. Plaintiffs made particularized allegations and submitted undisputed evidence that Lloyd's fraudulently concealed vital investment information about plaintiffs' exposure to hidden liabilities at the tune Lloyd's required them to sign the Choice Clauses. Plaintiffs alleged specifically - and presented unrefuted evidence - that Lloyd's insiders knew about the hidden liabilities and used the Choice Clauses to help shift those losses to the unsuspecting plaintiffs. Dismissal of the cases without trial or opportunity for discovery on plaintiffs' fraud allegations was error. Moseley v. Electronic & Missile Facilities. 374 U.S. 167 (1963).

The district court's order denying the motion for entry of default deprived plaintiffs of their opportunity to show that the Unincorporated Association had breached its fiduciary duty to the Names in such a manner as to render enforcement of the Choice Clauses "unreasonable." Under the circumstances, it was an abuse of discretion to withhold the ministerial act of entering default.

*17 REVIEWABILITY AND STANDARD OF REVIEW

Because the allegations of the complaint concerning the purpose and effect of the Choice Clauses - and the evidence - were uncontroverted, this Court must review the dismissal of plaintiffs' complaints de novo, regardless of whether the Society's motion to dismiss arose under Rule 12(b)(3) or 12(b)(6). See Hooker v. HHS, 858 F.2d 525, 528 n.2 (9th Cir. 1988) (decision under Rule 12(b)(3) reviewed de novo); Kruso v. International Tel. & Tel. Corp. 872 F.2d 1416, 1421 (9th Cir. 1989) (decision under Rule 12(b)(6) reviewed de novo), cert, denied. 496 U.S. 937 (1990). The district court's failure to apply the express command of the anti-waiver statutes must be reviewed de novo, because a district court's interpretation of a statute, such as the anti-waiver statutes, is always an issue of law reviewed de novo. See McDermott Int'l, Inc. v. Wilander. 498 U.S. 337, 356 (1991); In re King. 961 F.2d 1423, 1424 (9th Cir. 1992). [FN15]

FN15. The application of the anti-waiver statutes to these uncontroverted facts was raised at ER4 at 86:17 to 87:2; ER80 at 30:6 to 32:7. The application of public policy to these uncontroverted facts was raised at ER80 at 19:12 to 22:15, 30 n.143. The district court's rulings enforcing the Choice Clauses are at ER102 at 22:11 to 24:15.

The district court's determination of the sufficiency of the complaint's allegations with respect to allegations that the waiver clauses were induced by fraud is likewise a determination of law which is reviewed de novo. In re GlenFed Sec. Litig., 11 F.3d 843, 847 (9th Cir. 1993), vacated on reh'g on other grounds. 42 F.3d 1541 (9th Cir. 1994) (en banc). Similarly, to the extent that the district court determined that plaintiffs presented insufficient evidence in support of their complaint to raise a genuine issue of material fact with respect to the enforceability of the Choice Clauses (see ER102 at 18 to 19), that determination was also one of law reviewable de novo. Kruso. 872 F,2d at 1421; cf. *18Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 250 (1986) (court must reverse summary judgment unless "under the governing law..., there can be but one reasonable conclusion as to the verdict"). [FN16]

FN16. The allegations and the evidence of fraud were raised at ER4 at 85:27 to 86:12; ER80 at 1:1 to 2:9, 18:16 to 19:11, 26:10 to 28:12. The district court's rulings are at ER102 at 14:14 to 15:25, 16:26 to 20:5.

In the past, this Court has reviewed the enforcement of a forum selection provision for abuse of discretion. [FN17] It is an abuse of discretion, however, to apply incorrect legal standards. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990) (district court "would necessarily abuse its discretion if it based its ruling on an erroneous view of the law"); see also United States v. Rahm, 993 F.2d 1405,1410 (9th Cir. 1993); Northern Alaska Environmental Center v. Luian, 961 F.2d 886, 889 (9th Cir. 1992). Moreover, the Supreme Court has recently held that appellate courts should not employ an abuse of discretion standard to review questions - such as questions of law - that are not within the "institutional advantages of trial... courts." First Options v. Kaplan, 131 L. Ed. 2d 985, 996 (1995) (citation omitted). Because the only errors addressed on this appeal concerning the enforceability of the Choice Clauses are errors of law, de novo review is required.

FN17. See Spradlin v. Lear Sicaler Management Servs. Co. 926 F.2d 865, 867 (9th Cir. 1991); Pelleport Investors. Inc. v. Budco Quality Theatres. Inc. 741 F.2d 273, 280 (9th Cir. 1984).

The district court's denial of plaintiffs' request for entry of default against the Unincorporated Association is reviewed for abuse of discretion. Cf. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (denial of motion for default judgment reviewed for abuse of discretion). [FN18]

FN18. Plaintiffs moved for entry of default. (ER115). The district court's denial of the motion is at ER134 at 25:12 to 26:13.

*19 ARGUMENT

One undisputed fact bears on all aspects of this appeal as to the enforceability of the Choice Clauses: these clauses operate in tandem - in transactions occurring almost entirely within the United States - to deprive United States residents not only of access to United States courts but also of all protections under applicable United States laws. As the district court concluded, enforcing the Choice Clauses would require the plaintiffs to sue Lloyd's in English courts under English law. (ER102 at 23 to 24). Because litigating in England under English law would necessarily displace United States securities law, Congress's express anti-waiver legislation overrides the Choice Clauses and renders them void, 15 U.S.C. §§ 77n, 78cc(a). In addition, Lloyd's Choice Clauses are unenforceable because (i) their enforcement would contravene the strong public policy embodied in the securities and RICO statutes, and (ii) Lloyd's procured them through fraud. Bremen, 407 U.S. at 10-15.

I. The Anti-Waiver Statutes Nullify The Choice Clauses

The Choice Clauses are invalid because, in tandem, they would operate to waive the protections of the 1933 and 1934 Acts.

A. Plaintiffs Would Have Rights And Remedies Against Lloyd's Under The 1933 And 1934 Acts In The Absence Of The Choice Clauses

It is undisputed that, in becoming Names, plaintiffs purchased a "security" within the meaning of the federal securities statutes. SEC v. W.J. Howey Co., 328 U.S. at 299-301. See supra, note 8. By paying an initial membership fee for the right to enter the Lloyd's enterprise and signing the General Undertaking, Names purchased an investment contract that allowed them to risk their capital on the underwriting efforts of others. (ER4 at 46:5-12, 88:1-5; ER73 at 2:18-27, 9:4 to 10:14). See SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 480-82 (9th Cir.), cert. denied. 414 U.S. 821 (1973). Each Name also purchased a security when he pledged his entire net worth to each syndicate each year. (ER4 at 88:6-20; ER73 at 2:18-27, 13:18 to 14:21). See, e.g., Goodman v. Epstein, 582 F.2d 388, 412 (7th Cir. 1978) (each subsequent capital contribution made after execution of limited partnership agreement constituted *20 a separate purchase of a security because an investment decision remained to be made at the time of each call), cert, denied, 440 U.S. 939 (1979); Hector v. Wiens, 533 F.2d 429, 432-33 (9th Cir. 1976) (commitment to pay debts is an "investment" in a "security").

Nor is there any doubt that, in the absence of the Choice Clauses, United States securities laws would govern these cases. As alleged in the complaint and demonstrated by unrefuted evidence, the offering activities for these securities took place throughout the United States. (ER66 at 6:14 to 7:21, Tab B; ER4 at 41:26 to 42:22). Lloyd's, no less than any other foreign or domestic seller of securities, became subject to United States law when it undertook to sell its securities within United States borders. See Grunenthal GmbH v. Hotz, 712 F.2d 421, 425 (9th Cir. 1983); Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1334-37 (2d Cir. 1972).

B. The Choice Clauses Strip Plaintiffs Of All Their Rights Under Federal Securities Laws

Unless reversed, the district court's enforcement of the Choice Clauses will result in a waiver by plaintiffs of Lloyd's obligation to comply with the provisions of the United States securities laws. Section 5 of the 1933 Act prohibits the sale of a security unless a registration statement filed with the Securities and Exchange Commission is in effect. 15 U.S.C. § 77e. The buyer must also be furnished a prospectus containing detailed financial and other material information about the investment. Id. Failure to abide by these requirements, or to qualify for one of the narrowly limited exemptions from registration, exposes any seller of securities in the United States to strict liability in a private civil action under section 12(1) of the 1933 Act. 15 U.S.C. § 77l(a)(1). In such a case the buyer may rescind the sale or obtain damages. See generally Pinter v. Dahl, 486 U.S. 622, 637-39 (1988) (explaining the importance of section 12(1) at "the heart" of the scheme of regulation under the 1933 Act). Section 12(2) of the 1933 Act requires that the seller's representations in a public offering be true; unless the seller can prove that he acted with due diligence, the making of any material misstatements - or omitting any fact needed to make the statements not misleading - allows the buyer to rescind *21 the sale or obtain damages. 15U.S.C. § 771(a)(2); see Webster v. Omnitrition Int'l, Inc., 79 F.3d 776 (9th Cir. 1996) (reinstating claims that investor's purchase of non-returnable inventory as entry fee to join a pyramid marketing scheme violated Section 12of the 1933 Act).

It is undisputed on the record that Lloyd's violated the requirements of sections 5 and 12(2). (ER4 at 43:17 to 44:18, 87:16 to 92:16; ER66 at 12:17- 25). Lloyd's neither registered its securities offerings nor qualified for an exemption to the registration requirements of the 1933 Act. (ER4 at 43:21 to 44:11, 87:16 to 89:5; ER68, Tab G and Exs. 1 & 2). Moreover, Lloyd's told Names that adequate reserves were maintained, that syndicates were audited properly, and that the risks of investing were minimal. (ER4 at 90:9-27). As shown above, these statements were false and misleading. Accordingly, in United States courts applying the 1933 Act, Lloyd's would unquestionably be liable to plaintiffs for federal securities violations. English law, however, provides Lloyd's with a complete exemption from English securities regulation and would excuse (or "waive") Lloyd's non-compliance with United States statutes on point. (ER72 at 4:16 to 6:5).

In United States courts, moreover, the Society and others who directed the offerings of Lloyd's securities would be held liable as "controlling persons" under the 1934 Act for the Rule 10b-5 violations of those whom they controlled, directly or indirectly - such as the Members' Agents. Controlling persons would also be liable under the 1933 Act. [FN19] But English law provides no such cause of action against controlling persons and would excuse (or "waive") Lloyd's non-compliance with federal statutes on point. (ER72 at 24:16-20).

FN19. See 15 U.S.C. §§ 770, 78t (controlling person liable if person had reason to know facts constituting the violation); 17 C.F.R. § 230.405; see, e.g., Hollineer v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990), cert. denied, 499 U.S. 976 (1991). Section 10(b) of the 1934 Act and Rule 10b-5 thereunder prohibit reckless conduct in making untrue statements of material fact or material omissions in connection with the purchase or sale of a security. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5; see Hollinger, 914 F.2d at 1568-70. Plaintiffs alleged "controlling person" liability. (ER4 at 92:19 to 94:7, 96:8-27).

*22 Moreover, unlike the strict protections of the 1933 Act, which place significant evidentiary burdens on the defendant to avoid liability, English law follows the maxim of "let the buyer beware." Whereas Lloyd's must prove that it acted reasonably and in good faith to sustain a defense under 1933 Act § 12(2), [FN20] an English court applying the Lloyd's Act of 1982 would reverse the burden of proof by requiring the plaintiffs to prove Lloyd's bad faith. (ER4 at 80:14-24; ER72 at 3:9 to 4:14). The imposition of evidentiary burdens on the defendant with respect to the critical issues of knowledge and negligence affects precisely the land of substantive securities regulation that the anti-waiver provisions were intended to safeguard. In fact, the Supreme Court has specifically used this aspect of section 12(2) to illustrate the protections encompassed by the law against waiver. See Rodriguez de Ouiias v. Shearson/American Express. Inc. 490 U.S. 477, 481 (1989) (waiver of such rights under the 1933 Act violates anti-waiver provisions). Likewise, because it is undisputed that Lloyd's failed to register its offerings, the burden of proof would be upon the defendants to show that their offerings of securities were exempt from registration under the 1933 Act. See SEC v. Ralston Purina Co., 346 U.S. 119, 126 (1953). Forcing the plaintiffs to litigate in England would forever excuse Lloyd's from carrying this burden.

FN20. The defendant must prove "that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission." 15 U.S.C. § 77l (a)(2).

C. The Choice Clauses Are Void Under The Anti-Waiver Statutes

By statute, Congress has provided that no party may waive his or her right to compliance with the substantive provisions of the federal securities laws.

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

1933 Act § 14, 15 U.S.C. § 77n, A substantially identical provision is contained in section 29(a) of the 1934 Act. 15 U.S.C. § 78cc(a). By the express terms of these provisions, "[t]he voluntariness of the agreement is irrelevant to [the] inquiry: if a stipulation waives *23 compliance with a statutory duty, it is void under § 29(a), whether voluntary or not." Shearson/American Express v. McMahon, 482 U.S. 220, 230 (1987). Agreements that "weaken [the investors'] ability to recover" for violations of substantive rights are void. Id. at 231 (citation omitted). By attempting to substitute the lax requirements of English law for compliance with the strict requirements of federal securities regulation in the United States, the Choice Clauses violate this unequivocal congressional command.

The Supreme Court long ago made clear that contractual choice-of-Iaw clauses must yield to a protective statute like the securities laws' anti-waiver provisions if the clauses purport to displace United States law with a less favorable regime of foreign legal rules. In Knott v. Botany Mills, 179 U.S. 69 (1900), decided under the predecessor of the modern Carriage of Goods by Sea Act ("COGSA"), [FN21] the Supreme Court held that such a protective statute "overrides" a contractual choice of law provision. 179 U.S. at 72. The legislation at issue in that case provided:

FN21. 46 U.S.C. App. §§ 1300, et seq.

It shall not be lawful... to insert in any bill of lading or shipping document any clause, covenant or agreement whereby [the carrier or its agents] shall be relieved from liability for loss or damage arising from negligence.... Any and all words or clauses of such import... shall be null and void and of no effect.

Id. The owner of a British vessel was precluded by this statutory provision from relying on a contract clause specifying that the contract "shall be governed by the law of the flag of the ship," because it was undisputed that British law, if applicable, would have denied liability for negligence. Id. at 70-72. The Court concluded: "This express provision of the act of Congress overrides and nullifies the stipulations of the bill of lading that the carrier shall be exempt from liability for such negligence, and that the contract shall be governed by the law of the ship's flag." Id. at 77.

Forum selection clauses that impair the protections of substantive United States statutory law likewise are void under anti-waiver legislation. In *24Vimar Seguros v Reaseguros, S.A. v. M/V Sky Reefer. 132 L. Ed. 2d 462 (1995), the Court considered an arbitration agreement that required a shipping case to proceed in Japan. [FN22] Noting that COGSA nullifies any contractual provisions "lessening ... liability," 46 U.S.C. App. § 1303(8), the Court said: "The relevant question ... is whether the substantive law to be applied [in the foreign forum] will reduce the carrier's obligations to the cargo owner below what COGSA guarantees." Vimar, 132 L. Ed. 2d at 475 (emphasis added). The Court in Vimar then enforced the contractual choice only because it was satisfied that COGSA's statutory guarantees would be preserved in the foreign forum. Id. at 475-76 (citing Knott with approval). [FN23] See also Scherk, 417 U.S. at 518 n.12 (enforcing a provision for arbitration of securities claims hi France because enforcement "has no bearing on the scope of the substantive provisions of the federal securities laws for the simple reason that the question is not presented in this case."); Mitsubishi. 473 U.S. at 637 n.19 (enforcing arbitration in Japan because the tribunal was "bound to decide [the antitrust] dispute in accord with the national law giving rise to the claim," namely United States law).

FN22. The Supreme Court has repeatedly treated arbitration clauses as merely a "specialized kind of forum-selection clause." Rodriguez de Ouijas, 490 U.S. at 483; Mitsubishi. 473 U.S. at 630; Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974).

FN23. The Supreme Court in Vimar noted that the district court had retained jurisdiction to review the Japanese arbitral award to ensure compliance with COGSA's protective provisions. Vimar, 132 L. Ed. 2d at 476. In this manner the Court assured that COGSA's statutory guarantees would be met. Unlike in Vimar, there is no statutory procedure for such review here, because the contractually designated forum is a foreign court rather than an arbitral panel. Cf. 9 U.S.C. §§ 10-11 (Federal Arbitration Act procedure for judicial review); United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 42 (1987) (recognizing violation of statute as a basis for vacating or modifying arbitral award).

The district court ignored the clear anti-waiver provisions of the 1933 and 1934 Acts and failed to apply the analysis mandated by Knott and reaffirmed by Vimar, Instead, the court simply concluded that the forum selection clauses were not "'unreasonable' under the circumstances," and therefore enforceable under the "reasonableness" analysis of Bremen. 407 U.S. at 10, 15. (ER102 at 12:3-4, 24:17-20). This was error. Because the Choice Clauses specifically require all disputes to be resolved in England under English law, enforcement of *25 those clauses will indisputably result in plaintiffs losing all of their statutory rights and remedies under the United States securities laws. Lloyd's does not contend otherwise. [FN24] For this reason, the Choice Clauses are void under the statutory anti-waiver provisions of the 1933 and 1934 Acts, and Bremen's reasonableness analysis is irrelevant. [FN25]

FN24. The Society argued below that "English law governs the relationships among these parties" and "English law would govern such claims." (ER7 at 19-20 & n.17).

FN25. The California Corporate Securities Act contains a similar anti-waiver provision. See Cal. Corp. Code § 25701 (West 1995); Wimsatt v. Beverly Hills Weight Loss Clinics Int'l, Inc., 32 Cal. App. 4th 1511, 1521- 22 (1995) (enforcing identical anti-waiver provision in California Franchise Investment Law). The district court's enforcement of the Choice Clauses also violated this statutory provision.

D. The District Court Erred In Relying On Roby And Bonny

In deciding to apply the Bremen reasonableness test, the district court relied on decisions from other circuits that have likewise enforced the Choice Clauses. See Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993), cert. denied, 127 L. Ed. 2d 378 (1994); Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.), cert. denied, 126 L. Ed. 2d 333 (1993). Without even mentioning the anti-waiver statutes, the district court stated that it would follow Robv and Bonny, two appellate decisions that enforced the 1986 General Undertaking without addressing whether the clauses are "void" under the statutory anti-waiver provisions. Like Roby and Bonny, the district court viewed these statutory provisions merely as a sign of public policy - rather than as mandatory congressional commands - and therefore felt entitled to override the statutes in light of other policy considerations. See also Riley v. Kingsley Underwriting Agencies, Ltd. 969 F.2d 953 (10th Cir.), cert. denied, 506 U.S. 1021 (1992) (enforcing Choice Clauses without discussing anti-waiver statutes). As demonstrated below, those decisions - which no panel of this Court has yet considered - were wrongly decided. The district court's reliance on their reasoning was therefore misplaced. (ER102 at 24). [FN26]

FN26. Forty-two of these 609 plaintiffs were parties in Roby, As to those Roby plaintiffs, counsel advised the district court that collateral estoppel bars them from asserting that the anti-waiver provisions of the 1933 and 1934 Acts precludes enforcement of the Choice Clauses. (ER80 at 30 n.141, 35). However, whether the Choice Clauses were procured by fraud was not an issue in Roby. Here, all plaintiffs have alleged and shown that the clauses are unenforceable because they were procured by fraud. See Part HI, infra. In addition, all plaintiffs have shown that the clauses were procured in violation of an express statutory prohibition under 1933 Act § 17(a)(2), and thus are unenforceable as a matter of law. See Part II, infra, p. 33.

*26 In Roby, the court observed that "there is a serious question whether United States public policy has been subverted by the Lloyd's clauses." 996 F.2d at 1363; see also Bonny, 3 F.3d at 160. Yet both Robv and Bonny ultimately disregarded the mandatory language of the federal securities statutes based on purported public policy grounds. "We are satisfied not only that the Roby Names have several adequate remedies in England to vindicate their substantive rights, but also that in this case the policies of ensuring full and fair disclosure and deterring the exploitation of United States investors have not been subverted." Roby, 996 F.2d at 1365 (emphasis hi original); see also Bonny, 3 F.3d at 161 (substantially the same). As discussed below (see Part II, infra). Roby's policy judgment was wrong. More importantly, however, the Robv and Bonny courts erred by resting their decision on a quasi-legislative assessment of policy concerns under Bremen when Congress had already established the rule of decision in the anti-waiver statutes. The district court's opinion adhering to the reasoning of Roby and Bonny was wrong for the same reason.

The courts in Roby and Bonny cited the Supreme Court's decision in Bremen as support for their policy-based analysis. Their reliance on Bremen was misplaced, however, because Bremen - a case arising under the federal common law of admiralty - was decided without having to consider a statute like COGSA or the anti-waiver provisions of the 1933 and 1934 Acts. See 407 U.S. at 10 n.11 (noting that COGSA did not apply to the case). As the Court held in Stewart Organization v. Ricoh Corp., 487 U.S. '22 (1988), Bremen's judicially-created policy analysis under federal common law is not controlling when Congress has expressed its will in a statute that addresses the "immediate issue before the Court." Id. at 28 (holding that enforceability of forum selection clause is not governed by Bremen when venue motion arises *27 under 28 U.S.C. § 1404(a)). [FN27] Congress having spoken, "that is the end of the matter." 487 U.S. at 27. See also Restatement (Second) of Conflict of Laws § 80 cmt. b (1988 Rev.) ("Effect must be denied a choice-of-forum provision in situations where the provision is invalidated by statute") (emphasis added).

FN27. See also, e.g., Red Bull Assocs. v. Best Western Int'l, 862 F.2d 963, 966-67 (2d Cir. 1988) (under 28 U.S.C. § 1404(a), "interest of justice" warranted refusal to enforce forum selection clause); M.G.J. Indus., Inc. v. Greyhound Fin. Corp., 826 F. Supp. 430, 431-32 (M.D. Fla. 1993) (finding economic coercion warranted refusal to enforce forum selection clause under 28 U.S.C. § 1404(a)).

By uncritically adopting the result of Roby and Bonny, the district court in effect revoked section 12 of the 1933 Act, eliminating the provision that a seller "shall be liable." 15 U.S.C. § 77l(a)(1), (2). [FN28] Instead of this language, the district court, like the courts in Roby and Bonny, implicitly substituted the phrase "may or may not be liable under foreign law prescribed by the seller's contract." [FN29] The district court, however, was not at liberty to entertain a freewheeling policy debate by balancing the public interest in enforcing the anti-waiver laws against the asserted benefits of allowing freedom of contract in international business. Cf. Roby, 996 F.2d at 1361, 1365-66. That balance has already been struck by Congress, which has made no exception for foreign entities who come into the United States to sell their securities. "[F]ederal courts are bound to apply rules enacted by Congress with respect to matters... over which it has legislative power." Stewart, 487 U.S. at 27 (ellipses in original) (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406 (1967)).

FN28. The district court's decision also repealed plaintiffs' implied right of action under section 10(b) of the 1934 Act and Rule 10b-5. See supra, note 19.

FN29. See Bonny, 3 F.3d at 162 ("It is true that enforcement of the Lloyd's clauses will deprive plaintiffs of their specific rights under § 12(1) and 12(2) of the Securities Act of 1993"); Roby, 996 F.2d at 1366

("the United States securities laws would provide the Roby Names with a greater variety of defendants and a greater chance of success due to lighter scienter and causation requirements").Like the courts in Roby and Bonny, the district court apparently believed that English law should be considered "[] sufficient to deter British issuers from exploiting American investors *28 through fraud, misrepresentation or inadequate disclosure." Roby, 996 F.2d at 1365. [FN30] But that is not the issue. Private parties are not free to select the legal rules they regard as "sufficient" when Congress has clearly said that United States law may not be waived. In making its extraordinary legislative revision, the district court failed even to acknowledge the anti-waiver statutes. Such a result-oriented approach may encourage foreign enterprises to sell their securities to individuals hi the United States - but it is not consonant with the plain meaning of the statutes or Supreme Court precedent. It should not be adopted in this Circuit.

FN30. The uncontradicted allegations and evidence demonstrate that English law was not sufficient to deter Lloyd's from exploiting American investors. See also MJN Exs. 3-4, 7-13. Indeed, as the court found in Leslie, the Lloyd's insiders hoped to use the lax requirements of English law to escape hundreds of millions of dollars in losses that were shifted to unwitting American Names. (MJN Ex. 2 at 48, 50).II. The Choice Clauses Are "Unreasonable" And Unenforceable Because They Violate Strong Public PolicyQuite apart from the statutory anti-waiver provisions, forum selection clauses are not enforceable if they are "'unreasonable' under the circumstances." Bremen. 407 U.S. at 10. Such clauses are "unreasonable" if: (1) enforcement would contravene a strong public policy of the forum in which the suit is brought, "whether declared by statute or by judicial decision," id., at 10, 15; (2) they are the result of fraud, overreaching, undue influence or overweening bargaining power, id. at 10-13; or (3) the contractual forum is so gravely difficult and inconvenient that for all practical purposes the plaintiff will be deprived of a day hi court, id. at 18. As discussed below and in the next section (see Part III, infra), the Choice Clauses are unenforceable under both the public policy and fraud components of Bremen.The Choice Clauses in these cases offend the public policy embodied in the federal and state securities laws and RICO. The district court ignored repeated statements by the Supreme Court concerning the need to preserve the remedies provided by important remedial statutes such as these, and disregarded the fact that the Choice Clauses would preclude substantial remedies under these statutes. In Mitsubishi the Supreme Court stated that it would not enforce a forum *29 selection clause, as a matter of public policy, if the clause operated in tandem with a choice-of-law provision to subvert remedies under United States law. [I]n 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 for antitrust violations, we would have little hesitation in condemning the agreement as against public policy. 473 U.S. at 637 n.19 (citations omitted); see also Bremen. 407 U.S. at 17 ("selection of a remote forum to apply differing foreign law to an essentially American controversy might contravene an important public policy of the forum"). Here it is clear - and Lloyd'5 does not dispute - that sending the American Names to England would effectively kill their claims under federal and state securities laws and RICO. [FN31] Accordingly, enforcement of the Choice Clauses would contravene the judicially-recognized public policy of preserving statutory remedies. [FN32]

FN31. As the Court recognized in Mitsubishi, courts routinely have refused to enforce the prospective waiver of compliance with antitrust statutes, even in the absence of express legislation to preclude such a waiver. See, e.g., Redel's. Inc. v. General Elec. Co., 498 F.2d 95, 98-99 (5th Cir. 1974) (approved by Mitsubishi): Gaines v. Carrollton Tobacco Bd. of Trade. Inc. 386 F.2d 757, 759 (6th Cir. 1967) (same); Fox Midwest Theatres. Inc. v. Means. 221 F.2d 173 (8th Cir. 1955) (same), and cases cited therein.

FN32. See supra, note 29 (quoting Bonny, 3 F.3d at 162; Roby, 996 F.2d at 1366).Federal and state securities laws, no less than the antitrust laws considered in Mitsubishi, are of "fundamental importance to American democratic capitalism." Mitsubishi. 473 U.S. at 634. The private right of action has for more than three generations been "an important mode of enforcing federal securities statutes." [FN33] Forum selection clauses precluding private civil remedies would undermine these strong remedial purposes. Thus, for the reasons noted in *30 Mitsubishi, the Choice Clauses would be unenforceable even if the federal and state securities laws did not contain express statutory provisions precluding waiver. [FN34]

FN33. Pinter v. Dahl, 486 U.S. at 633 (noting limitation on equitable defense of in pari delicto