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1997 WL 607543
(S.D.N.Y.) Oliver R. GRACE, Jr.,
Carolyn M. Grace, Lorraine G. Grace, Yumiko Honda, Robert A. Posner, and Thomas
V. Leeds, Plaintiffs, v. CORPORATION OF
LLOYD’s, also known as Society of & Council of Lloyd’s, doing business as Lloyd’s
of London, Council of Lloyd’s, and Committee of Lloyd’s, Defendants. No. 96 Civ.
8334(JGK). United States
District Court, S.D. New York. Oct. 2, 1997. COUNSEL: Mark D. Lebow, Richard DePalma, Coudert
Brothers, New York City, for plaintiffs. Bonnie Steingart, Stephanie Goldstein, Fried
Frank Harris Shriver & Jacobson, New York City, for defendants. OPINION AND ORDER JUDGE: KOELTL, J. [*1] The plaintiffs, Oliver R. Grace, Jr., Carolyn M.
Grace, Lorraine G. Grace, Yumiko Honda, Robert A. Posner, and Thomas V. Leeds,
commenced this action in the Supreme Court of the State of New York, New York
County, against defendants Corporation of Lloyd’s, Council of Lloyd’s, and
Committee of Lloyd’s (collectively, “Lloyd’s”), and Citibank, N.A.,
IBJ Schroder Bank & Trust Company, Barclays Bank PLC, The Chase Manhattan
Corporation, and Morgan Guarantee Trust Company of New York (collectively, the
“Bank defendants”) by filing the summons and complaint. The
defendants removed the case to federal court. The plaintiffs now move to remand
this case to state court pursuant to 28 U.S.C. 1441(c), 1447(c). Defendant Lloyd’s cross-moves to dismiss
the complaint pursuant to Fed.R.Civ.P. 12(b)(3) for improper venue. For the
reasons explained below, the plaintiffs’ motion is denied, and the defendant’s
motion is granted. I. “Lloyd’s is a unique and complex insurance
market that has been operating in London for more than 300 years.” In re
Lloyd’s Am. Trust Fund Litig., 928 F.Supp. 333, 335 (S.D.N.Y.1996). It “is
a market somewhat analogous to the New York Stock Exchange.” Roby v..
Corporation of Lloyd’s, 996 F.2d 1353, 1357 (2d Cir.), cert. denied, 510 U.S.
945, 114 S.Ct. 385, 126 L.Ed.2d 333 (1993). Each plaintiff is an underwriting
member of defendant Lloyd’s. In connection with their membership in defendant
Lloyd’s, the plaintiffs caused the Bank defendants to issue letters of credit
in favor of Lloyd’s that were secured by collateral including cash deposits. On October 30, 1996, the plaintiffs commenced
this action in the Supreme Court of the State of New York. In their complaint,
the plaintiffs allege that defendant Lloyd’s engaged in a scheme to defraud
them in connection with their memberships in Lloyd’s as underwriters. More
specifically, the plaintiffs allege that Lloyd’s and its agents actively failed
to disclose material information in connection with investment in Lloyd’s,
including but not limited to: (a) exposure to unquantifiable liability as a
result of asbestos and pollution risks underwritten decades ago and passed on
to plaintiffs without disclosure; (b) joint liability for the underwriting
losses of other investors despite representations that the plaintiffs were only
subject to several liability for those risks they agreed to underwrite; (c) the
collection of funds from plaintiffs for alleged losses which either cannot be
documented, or for which Lloyd’s and its agents refuse to document; and (d) the
transfer without plaintiffs’ consents of their assets and obligation to a
separate insurance company other than Lloyd’s. (Compl. 17.) The plaintiffs
contend that the actions of defendant Lloyd’s violate New York State consumer
protection laws and constitute common law fraud, breach of fiduciary duty, and
breach of the duty of utmost good faith. (Compl. 16, 128-53.) The plaintiffs
assert that they are entitled to compensatory, exemplary, and punitive damages
and preliminary and permanent injunctive relief. The plaintiffs also sought
preliminary and permanent injunctive relief from the Bank defendants to prevent
them from seizing, transferring, or conveying any of the plaintiffs’ assets or
collateral held against letters of credit issued to defendant Lloyd’s. (Compl.
160-61.) [*2] On October 31, 1996, the New York State Supreme
Court entered an order to show cause that temporarily restrained the Bank
defendants from seizing the plaintiffs’ collateral in connection with the
plaintiffs’ status as “Members” or “Names” of defendant
Lloyd’s. On November 6, 1996, the order to show cause was amended nunc pro tunc
to include a provision restraining the Bank defendants temporarily from
“making or enforcing any payment to Lloyd’s or its agents pursuant to
demands or ‘cash calls’ relating directly or indirectly to plaintiffs….” On November 6, 1996, defendant Citibank filed a
notice of removal of this action to the United States District Court for the
Southern District of New York, alleging jurisdiction pursuant to 12 U.S.C. 632 (Edge Act jurisdiction). On
November 7, 1996, defendant Lloyd’s filed a joinder in notice of removal,
alleging jurisdiction pursuant to 12 U.S.C. 632, 28 U.S.C.
1332 and 28 U.S.C. 1441(b)
(diversity of citizenship), and 9 U.S.C.
205 (the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards). The remaining Bank defendants filed a supplemental notice of
removal on November 25, 1996, alleging jurisdiction pursuant to 12 U.S.C. 632. On November 13, 1996, this Court vacated the
temporary restraining order issued previously by the state court. Following an
interim stay, the Court of Appeals denied the plaintiffs’ motion for a stay
pending appeal of this Court’s November 13, 1996 order without prejudice to the
plaintiffs’ right to apply to this Court for a temporary restraining order
pending the hearing for the preliminary injunction. On November 27, 1996, this
Court denied the plaintiffs’ application for a temporary restraining order
pending the hearing for a preliminary injunction. The plaintiffs subsequently
withdrew their motion for a preliminary injunction. (Tr. of Dec. 6, 1996
Hearing at 2.) By notice of dismissal dated December 2, 1996,
pursuant to Fed.R.Civ.P. 41(a)(1), the plaintiffs voluntarily dismissed the
complaint as against the Bank defendants with the exception of defendant IBJ
Schroder Bank & Trust Company (“IBJ Schroder”) which had already
answered. On December 6, 1996, the Court issued an order dismissing the
complaint as to defendant IBJ Schroder without prejudice to its counterclaim
against plaintiff Lorraine Grace for attorneys’ fees. [FN1] FN1. In response to an inquiry by the Court, on April 3, 1997, IBJ Schroder advised the Court that its counterclaim for attorneys’ fees against plaintiff Lorraine Grace was now moot. Therefore, because that counterclaim is now moot, it is also dismissed. The Court is entering a separate order dismissing that counterclaim. On January 3, 1997, defendant Lloyd’s filed a
second notice of removal, alleging that to the extent that the Court determines
that Lloyd’s could not have previously removed this action, the dismissal of
the plaintiffs’ claims against all of the banks created complete diversity and
thus made the case removable pursuant to 28 U.S.C. 1332 and 28 U.S.C.
1441(b). III. The plaintiffs move to remand this case to the
New York State Supreme Court, New York County. The plaintiffs first argue that
remand is appropriate because at the time this action was removed, this Court
lacked subject matter jurisdiction. See 28 U.S.C. 1447(C). [FN2] The plaintiffs also argue that, in the event
that the Court finds that federal jurisdiction did exist, the Court should
exercise its discretion to remand the case because state law questions are the
only issues that remain in the case. See 28 U.S.C. 1441(c). FN2. The plaintiffs also move to remand pursuant to 28 U.S.C. 1447(c) based on defects in removal procedure. However, these grounds have been mooted. Defendant Lloyd’s filed the state court records and proceedings in this action on November 25, 1996, in compliance with Local Civil Rule 25(c) (now Local Civil Rule 81.1(b)) of the United States District Courts for the Southern and Eastern Districts of New York. Furthermore, all of the Bank defendants joined in Citibank’s notice of removal. [*3] Two sections of the federal removal statute
authorize district courts to remand cases to state court after removal. Under 28
U.S.C. 1447(c), a district court
is required to remand a case “[i]f at any time before final judgment it
appears that the district court lacks subject matter jurisdiction.” Under
28 U.S.C. 1441(c), where a federal
question claim is joined with otherwise non-removable claims, a district court
may determine all issues or, in its discretion, may remand all matters in which
state law predominates. In determining whether an action should be remanded, a
court should refer to the complaint at the time the petition for removal was
filed. See In re 17,325 Liters of Liquor, 918 F.Supp. 51, 54 (N.D.N.Y.1996);
Rosenberg v. GWV Travel, Inc., 480 F.Supp. 95, 96 (S.D.N.Y.1979). The removing
party bears the burden of proof in demonstrating its right to a federal forum. See
R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir.1979);
Ellis v. Provident Life & Accident Ins. Co., 929 F.Supp. 751, 753
(S.D.N.Y.1996). A. The plaintiffs contend that this action was
improperly removed because there was no diversity jurisdiction or federal
question jurisdiction at the time of removal. Defendant Lloyd’s contends that,
at the time the petition for removal was filed, the Court had original
jurisdiction under the Edge Act, 12 U.S.C. 632. Section 632 of Title 12 provides in relevant part: Notwithstanding any other provision of law, all
suits of a civil nature at common law or in equity to which any corporation
organized under the laws of the United States shall be a party, arising out of
transactions involving international or foreign banking … or out of other
international or foreign financial operations … shall be deemed to arise
under the laws of the United States, and the district courts of the United
States shall have original jurisdiction of all such suits; and any defendant in
any such suit may, at any time before the trial thereof, remove such suits from
a state court into the district court of the United States for the proper
district by following the procedure for the removal of causes otherwise provided
by law. Both Citibank and Chase are organized under the
laws of the United States, and the remaining requirements of 632 are satisfied in this case. Indeed,
in a very similar action against Lloyd’s and two banks, Judge Scheindlin found
that the lawsuit was properly removed to this Court pursuant to 632. See Stamm v. Barclays Bank of New
York, No. 96 Civ. 5158, 1996 WL 614087, at *2 (S.D.N.Y. Oct.24, 1996); see also
In re Lloyd’s American Trust Fund Litig., 928 F.Supp. 333, 338 (S.D.N.Y.1996)
(“A suit satisfies the jurisdictional requisites of Section 632 if any
part of it arises out of transactions involving international or foreign
banking.”). In this case, the parties’ dispute arises out of
an “international or foreign banking” transaction. The transaction at
issue is “international” in nature: defendant Lloyd’s and one of the
Bank defendants are foreign entities, and the agreements executed between the
plaintiffs and Lloyd’s and the deposit of the plaintiffs’ collateral with the
Bank defendants as security for the letters of credit are all part of a complex
international transaction. See Stamm, 1996 WL 614087, at *2. Moreover, the
issuance of letters of credit is a traditional banking activity that confers
jurisdiction under 632, even when
the issuer is no longer a party to the action. See Corporacion Venezolana de
Fomento v. Vintero Sales Corp., 629 F.2d 786, 792-93 (2d Cir.1980), cert.
denied, 449 U.S. 1080, 101 S.Ct. 863, 66 L.Ed.2d 804 (1981). [*4] The plaintiffs, citing Bata v. Central-Penn
Nat’l Bank of Philadelphia, 223 F.Supp. 91 (E.D.Pa.1963), argue that 632 does not apply in this case because
the Bank defendants were neutral stakeholders and had no interest in the
ultimate outcome of the suit. In Bata, the court granted a motion to remand and
rejected jurisdiction under 632
upon finding that the bank defendant, which had acted as the parties’ escrow
agent, had no real interest in the outcome of the case. See id. at 94
(“Indeed, at the trial of the case [the bank defendant’s] counsel’s only
problem will be to decide at which table to sit.”) However, in this case,
the Bank defendants made clear from the beginning that they were not just
neutral stakeholders. They were exposed to the prospect of financial loss in
this action and the prospect that they would be obligated to pay defendant
Lloyd’s under the letters of credit but be prevented from seizing the
plaintiffs’ collateral. See Stamm, 1996 WL 614087, at *3. Moreover, the Bank
defendants took an active role in the litigation. Defendant Citibank filed the
initial notice of removal, which the remaining Bank defendants later joined.
The Bank defendants actively opposed the plaintiffs’ request for preliminary
injunctive relief, arguing that their reputations as reliable international
bankers and the integrity of the system of letters of credit were at stake. See
United Technologies Corp. v. Citibank, N .A., 469 F.Supp. 473, 477
(S.D.N.Y.1979) (finding Edge Act jurisdiction where plaintiffs sought to enjoin
national bank from making payments under letters of credit). The Bank
defendants thus had sufficient interests at stake in this action to distinguish
them from the bank defendant escrow agent in Bata. Accordingly, this action was
properly removed pursuant to 12 U.S.C.
632. [FN3] FN3. Defendant Lloyd’s asserts that two other bases for federal court jurisdiction existed at the time of removal. First, it argues that if Edge Act jurisdiction did not exist at the time of removal because the Bank defendants were mere stakeholders, then the Bank defendants were not parties in interest for purposes of determining diversity. See Salem Trust Co. v. Manufacturers’ Finance Co., 264 U.S. 182, 190, 44 S.Ct. 266, 68 L.Ed. 628 (1924). Defendant Lloyd’s contends that diversity jurisdiction therefore existed between the plaintiffs, who are citizens of New York and New Jersey, and defendant Lloyd’s, which is a citizen of the United Kingdom. However, as explained above, the Bank defendants were more than mere stakeholders and therefore there was no diversity jurisdiction at the time of removal. Second, defendant Lloyd’s asserts that this
Court has jurisdiction pursuant to the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 9 U.S.C. 205. Defendant Lloyd’s argues that the plaintiffs entered into
agreements with their Members’ Agents and Managing Agents under which they
agreed to arbitrate all disputes in England and that Lloyd’s is entitled to
enforce these agreements as a third-party beneficiary. See Roby v. Corporation
of Lloyd’s, 824 F.Supp. 336, 342 (S.D.N.Y.1992), aff’d, 996 F.2d 1353 (2d
Cir.), cert. denied, 510 U.S. 945, 114 S.Ct. 385, 126 L.Ed.2d 333 (1993).
However, Lloyd’s concedes that it has not exercised its alleged right to compel
arbitration because the current motion can be decided based on the Edge Act.
See Lloyd’s Memo. In Opp’n to Pl.’s Mot. to Remand at 9 n. 6. Therefore, it is
unnecessary to reach the question whether the existence of the arbitration
clauses which have not been invoked would be a basis for jurisdiction. B. The plaintiffs also contend that, even assuming
that there was jurisdiction over this action pursuant to 632 at the time of removal by the
defendants, that basis for jurisdiction ceased to exist upon dismissal of the
plaintiffs’ request for an injunction against the Bank defendants and the
dismissal of those defendants from the case. The plaintiffs argue that, under
the circumstances, the case should be remanded to the New York State Supreme
Court pursuant to 28 U.S.C.
1441(c). In Naylor v. Case & McGrath, Inc., 585 F.2d 557 (2d
Cir.1978), the Court of Appeals for the Second Circuit explained: On the issue of remanding a case to the state
court when the federal ground of jurisdiction is withdrawn or fails, the cases
furnish little certain guidance. Much may depend on whether the case was
removed as one embracing a federal claim and pendent state claims or was a case
containing a separate and independent claim or cause of action which was within
the federal jurisdiction along with distinct state law claims which were not
within the federal jurisdiction on any ground. Where, as in this case, the
state and federal claims do derive from a common nucleus of operative facts and
are such as would ordinarily be tried in one judicial proceeding, pendent
jurisdiction is a doctrine of discretion (United Mine Workers v. Gibbs, 1966,
383 U.S. 715, 725-727, 86 S.Ct. 1130, 16 L.Ed.2d 218). [*5] Naylor, 585 F.2d at 561; see also Torres v. CBS
News, 879 F.Supp. 309, 321 (S.D.N.Y.) (“[I]t is a matter of this court’s
discretion whether or not to retain the case since ‘[i]f the federal party is
eliminated from the suit after removal pursuant to [ 1442(a)(1) ], the district court does not lose its ancillary
or pendent-party jurisdiction over the state law claims against the remaining
non-federal parties….”) (quoting District of Columbia v. Merit Sys.
Protection Bd., 762 F.2d 129, 132-33 (D.C.Cir.1985)), aff’d, 71 F.3d 406 (2d
Cir.1995); 14A Charles A. Wright & Arthur R. Miller, Federal Practice and
Procedure 3739 (1985) (“[T]he
court has the power to continue to hear jurisdictionally insufficient claims
removed under Section 1441(c) even after the claim or claims providing the
basis for removal have been eliminated from the action, although the court may
choose to remand the nonfederal claims.”). In deciding whether to retain
the case, a court should consider issues of comity, federalism, judicial
economy, and fairness to the litigants. See Naylor, 585 F.2d at 562; Torres,
879 F.Supp. at 321; 805 Third Avenue Co. v. Excel Mktg. Enters. Corp., Nos. 85
Civ. 5205, 85 Civ. 7030, 85 Civ. 7031, 1987 WL 12822, at *5 (S.D.N.Y. June 18,
1987), aff’d, 847 F.2d 834 (2d Cir.1988); Givoh Assocs. v. American Druggists
Ins. Co., 562 F.Supp. 1346, 1352 (E.D.N.Y.1983). In this case, however, remand would be improper
because the Court has a new basis of subject matter jurisdiction that was
created after the action was properly removed to federal court under the Edge
Act. Although jurisdiction under the Edge Act no longer exists, the dismissal of
the Bank defendants from this action as of December 6, 1996 created complete
diversity between the plaintiffs, who are citizens of New York and New Jersey,
and defendant Lloyd’s, which is a citizen of the United Kingdom. [FN4]
Diversity of citizenship, sufficient for removal, can in fact be created by the
plaintiff’s actions after a case is filed: FN4. The plaintiffs contend that there was no diversity of citizenship as of December 6, 1996, because defendant IBJ Schroder, a New York bank, continued to assert a counterclaim against the plaintiffs. However, jurisdiction over an action is considered independently of the counterclaims so that in this case the existence of the counterclaim would not destroy diversity. The plaintiffs cite no case to the contrary. In any event, the Court has now dismissed IBJ Schroder’s counterclaim as moot. Furthermore, even if diversity jurisdiction did not exist, as explained below, the Court would retain jurisdiction under 1441(c) pursuant to its exercise of supplemental jurisdiction. Diversity may be created after the filing of a
complaint through voluntary acts of the plaintiff…. The rationale for this
rule is that although a defendant should not be allowed to change his domicile
after the complaint is filed for the sole purpose of effectuating removal,
there is no reason to protect the plaintiff against the adverse consequences of
his own voluntary acts. Yarnevic v. Brink’s, Inc., 102 F.3d 753, 754-55
(4th Cir.1996). Because there now exists an independent basis for federal
jurisdiction, the Court cannot remand this case to state court for lack of
jurisdiction, whether pursuant to 28 U.S.C. 1447(c) or 28 U.S.C.
1441(c). See Brockman v. Merabank, 40 F.3d 1013, 1016-17 (9th Cir.1994);
Buchner v. FDIC, 981 F.2d 816, 818-20 (5th Cir.1993). See also Thermtron
Products, Inc. v. Hermansdorfer, 423 U.S. 336, 351, 96 S.Ct. 584, 46 L.Ed.2d
542 (1976) (noting that the District Court had no power to remand case
under 1447(c) where it had
diversity of citizenship jurisdiction.). [*6] Moreover, even if this were a case where remand
should be judged by the discretionary standards of comity, federalism, judicial
economy, and fairness to the parties, the Court would nevertheless decline to
remand. There is plainly complete diversity of the parties. Remand to the state
court would be followed promptly by Lloyd’s immediate removal of this action
back to federal court, which Lloyd’s has represented that it would do. [FN5]
That procedure ill serves the parties, the state or the federal court. Cf.
Allied Programs Corp. v. Puritan Ins. Co., 592 F.Supp. 1274, 1277
(S.D.N.Y.1984). FN5. On January 3, 1997, defendant Lloyd’s filed a protective second notice of removal alleging that this action became removable on diversity grounds. Accordingly, the plaintiffs’ motion to remand
this action to the New York State Supreme Court is denied. IV.
2.1 The rights and obligations of the parties
arising out of or relating to the Member’s membership of, and/or underwriting
of insurance business at, Lloyd’s and any other matter referred to in this
Undertaking shall be governed by and construed in accordance with the laws of
England. 2.2 Each party hereto irrevocably agrees that the courts of England
shall have exclusive jurisdiction to settle any dispute and/or controversy of
whatsoever nature arising out of or relating to the Member’s membership of,
and/or underwriting of insurance business at, Lloyd’s and that accordingly any
suit, action or proceeding (together in this Clause 2 referred to as
“Proceedings”) arising out of or relating to such matters shall be
brought in such courts and, to this end, each party hereto irrevocably agrees
to submit to the jurisdiction of the courts of England and irrevocably waives
any objection which it may have now or hereafter to (a) any Proceedings being
brought in any such court as is referred to in this Clause 2 and (b) any claim
that any such Proceedings have been brought in an inconvenient forum and
further irrevocably agrees that a judgement in any Proceedings brought in the
English courts shall be conclusive and binding upon each party and may be enforced
in the courts of any other jurisdiction. (Aff. of Stephanie J. Goldstein, Exs.
A-F.) Forum selection clauses are usually enforced in federal courts in general
and in this Circuit in particular. See Carnival Cruise Lines, Inc. v. Shute,
499 U.S. 585, 589-97, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991); M/S Bremen v.
Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972);
Bense v. Interstate Battery Sys. of Am., Inc., 683 F.2d 718, 721-22 (2d
Cir.1982); Jasol Carpet, Inc. v. Patcraft Commercial Carpet, Inc., No. 96 CIV.
3064, 1997 WL 97831, at *2 (S.D.N.Y. March 6, 1997). In Roby v. Corporation of
Lloyd’s, 996 F.2d 1353 (2d Cir.), cert. denied, 510 U.S. 945, 114 S.Ct. 385,
126 L.Ed.2d 333 (1993), the Court of Appeals for the Second Circuit explained: [*7] The Supreme Court certainly has indicated that
forum selection and choice of law clauses are presumptively valid where the
underlying transaction is fundamentally international in character. In The
Bremen, the Court explained that American parochialism would hinder the
expansion of American business and trade, and more generally, interfere with
the smooth functioning and growth of global commerce. Forum selection and
choice of law clauses eliminate uncertainty in international commerce and
insure that the parties are not unexpectedly subjected to hostile forums and
laws. Moreover, international comity dictates that American courts enforce
these sorts of clauses out of respect for the integrity and competence of
foreign tribunals. In addition to these rationales for the presumptive validity
of forum selection and choice of law clauses, the Court has noted that
contracts entered into freely generally should be enforced because the
financial effect of forum selection and choice of law clauses likely will be
reflected in the value of the contract as a whole. Id. at 1362-63 (citations and footnote omitted). However, forum selection and choice of law
clauses will not be enforced where there is a clear showing that the clauses
are “ ‘unreasonable’under the circumstances.” Bremen, 407 U.S. at
10; see also Roby, 996 F.2d at 1363. They will not be enforced: (1) if their incorporation into the agreement
was the result of fraud or overreaching; (2) if the complaining party ‘will for
all practical purposes be deprived of his day in court,’due to the grave
inconvenience or unfairness of the selected forum; (3) if the fundamental
unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if
the clauses contravene a strong public policy of the forum state. Roby, 996 at
1363 (citations omitted). These limitations on forum selection and choice
of law clauses are no bar to the validity and enforceability of the particular
forum selection and choice of law clauses at issue in this case since they have
been specifically upheld by the Court of Appeals for the Second Circuit. Roby,
996 F.2d at 1361-66. In fact, the validity and enforceability of the same or
similar clauses has been upheld by five other circuits. See Haynsworth v. The
Corporation, Nos. 96- 20769, 96-20805, 1997 WL 534146 (5th Cir. Aug.29, 1997);
Allen v. Lloyd’s of London, 94 F.3d 923 (4th Cir.1996); Shell v. R.W. Sturge,
Ltd., 55 F.3d 1227 (6th Cir.1995); Bonny v. Society of Lloyd’s, 3 F.3d 156 (7th
Cir.1993), cert. denied, 510 U.S. 1113, 114 S.Ct. 1057, 127 L.Ed.2d 378 (1994);
Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.), cert.
denied, 506 U.S. 1021, 113 S.Ct. 658, 121 L.Ed.2d 584 (1992). The only Court of
Appeals to have disagreed with this consensus is the Court of Appeals for the
Ninth Circuit which, explicitly disagreeing with the Court of Appeals for the
Second Circuit and the other Circuits to have considered the issue, found the
forum selection and choice of law provisions in the General Undertaking to be
invalid as applied to claims under the United States securities laws, although
it did conclude that claims of common law fraud and breach of fiduciary duty
must be pursued according to the forum selection and choice of law clauses.
Richards v. Lloyd’s of London, 107 F.3d 1422, 1424 (9th Cir.1997). The Court of
Appeals for the Ninth Circuit has recently granted rehearing en banc in
Richards. Richards v. Lloyd’s of London, 121 F.3d 565 (9th Cir.1997). [*8] In this case, the plaintiffs do not contend that
enforcement of the forum selection and choice of law clauses will deprive them
of their day in court or deprive them of a remedy or that the clauses
contravene a strong public policy. [FN6] Instead, they argue that the clauses
should not be enforced because “fraud vitiates not only the relationship
between the parties but also any forum selection clause proffered by
Lloyd’s.” (Pls.’Mem. of Law in Opp'n to Def. Lloyd’s Mot. to Dismiss at
2.) However, the plaintiffs do not make any specific allegations in their
complaint or papers that the forum selection and choice of law clauses were
procured by fraud. Although the plaintiffs allege that “in 1986 they were
fraudulently induced into signing a single piece of paper entitled ‘General
Undertaking’which allegedly contained a Choice Clause,” (Pls.’Mem. of
Law in Opp'n to Def. Lloyd’s Mot. to Dismiss at 10), a general allegation of
fraud in the inducement of the contract as a whole is not enough to support the
invalidation of the forum selection and choice of law clauses. See Haynsworth,
121 F.3d 956, 1997 WL 534146, at * 6-*7; Bonny, 3 F.3d at 160 & n. 10;
Riley, 969 F.2d at 960; Tufts v. Corporation of Lloyd’s, No. 95 CIV. 3480, 1996
WL 533639, at *5 (S.D.N.Y. Sept.19, 1996). The plaintiffs have failed to explain
with particularity that “the inclusion of that clause in the contract was
the product of fraud or coercion.” Scherk v. Alberto-Culver Co., 417 U.S.
506, 519 n. 14, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974); see also Riley, 969 F.2d
at 960; Tufts, 1996 WL 533639, at *5; cf. Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)
(“Accordingly, if the claim is fraud in the inducement of the arbitration
clause itself—an issue which goes to the ‘making’of the agreement to
arbitrate—the federal court may proceed to adjudicate it.”). FN6. In subsequent correspondence with the Court, the plaintiffs argued for the first time that one decision of one English court cast doubt on their ability to have their fraud claims heard in England. See The Society of Lloyd’s and Wilkinson and Others (“Wilkinson”). However, that decision focused on an issue of a set off against a premium debt owed by a Name and explicitly stated that it did not exclude or restrict a remedy by way of damages for fraudulent misrepresentation. (Slip Op. at 46.) Moreover, the Court of Appeals for the Second Circuit has explicitly held that English law does in fact provide adequate remedies for pursuing claims of fraud and misrepresentation. See Roby, 996 F.2d at 1365. The Court of Appeals for the Fifth Circuit
recently analyzed similar allegations of fraud and found them wanting because
they were not tied to the specific clauses in the General Undertaking and
because, in any event, the forum selection and choice of law clauses were
straightforward and prominent clauses in a brief and understandable document.
See Haynsworth, 121 F.3d 956, 1997 WL 534146, at *7-*8. That thorough analysis
is equally persuasive here. [FN7] FN7. The plaintiffs also sought in subsequent correspondence to amend their complaint to allege a claim under the federal securities laws. See Letter of Mark D. Lebow dated May 7, 1997. No motion has been made and no prospective complaint has been proffered. The plaintiffs asserted that they had not made the claim earlier because “when the Complaint was filed, the Roby case barred such claims .” A letter is not an appropriate means to make a motion to amend. In any event, any such motion would be futile because it remains the law in this Circuit that, despite a claim of federal securities law violations, the choice of law and forum selection clauses will be enforced. Roby, 996 F.2d at 1361-66. Other Courts of Appeals agree. Riley, 969 F.2d at 957-58; Bonny, 3 F.3d at 161-62; Allen, 94 F.3d at 929 30; Haynsworth, 121 F.3d 956, 1997 WL 534146, at *9-*14. The decision by the Court of Appeals for the Ninth Circuit to the contrary in Richards is now the subject of a rehearing en banc. Accordingly, because the plaintiffs have failed to make any colorable showing that the forum selection and choice of law clauses should not be enforced, defendant Lloyd’s motion to dismiss the complaint is granted. [FN8] FN8. Because the plaintiffs have failed to make a sufficient showing that the forum selection and choice of law clauses should not be enforced, it is unnecessary to reach defendant Lloyd’s arguments that the plaintiffs are barred by collateral estoppel and res judicata from contesting the enforceability of the forum selection and choice of law clauses based on their participation in the Richards and Allen cases. It is also unnecessary to reach the defendant Lloyd’s argument that the doctrine of forum non conveniens requires dismissal of this action. CONCLUSION For the reasons explained above, the plaintiffs’
motion to remand is denied. Defendant Lloyd’s motion to dismiss the complaint
is granted. The Clerk is directed to enter Judgment dismissing the action and
closing the case. SO ORDERED. |