JOHN S. ROBY; SUSAN B. BOLIN; AMANDA A. BRYAN; ANNE L.
BRYAN; FLORENCE E. BRYAN; JOHN M. BRYAN; SUZANNE E. BRYAN; ROBERT S. CLARKE;
PATRICK J. COLLINS; DANIEL F. COUGHLIN; ROBERT L. COX; JOHN D. DIVER; ALBERT W.
DUGAN; LEE R. ELLENBURG; JULES I. EPSTEIN; TILLMAN R. FESPERMAN; MARTHA H.
FOGELMAN; ROBERT F. FOGELMAN; ROBERT S. FORMAN; LEONARD FRIEDMAN; MARVIN
GOODSON; ANDREW GROSSMAN; KATHRYN B. HAMPTON; ALTON B. HARRIS; MICHAEL C.
HARTLEY; CAROL M. HATHAWAY; JEROME E. HICKEY; ALAN J. HUNKEN; DALE A. JENKINS;
ROBERT B. KING; RICHARD J. KISSEL; RAYMOND C. LEE; JANIS L. MACMILLAM; J.
STEVEN MARKS; MARY L. MARKS; JAMES L. MCCORMICK; NORMAN N. MINTZ; CHARLES E.
MORRIS; ALVIN B. MOSS; WILLIAM B. MURRAY; MARGARET W. NICHOL; ROSEMARY H.
PASEK; JOSEPH N. PATTISON; CHARLES F. ROBINSON; JOHN N. ROBINSON; JOE R. ROBY;
HERBERT A. RUBIN; JACOB A. RUBIN; ROBERT W. RUDER; CONSTANTINE SALONITIS;
ARTHUR SCHECHNER; CHARLES SCHNAID; LOUIS B. SCHOEN; K. DINO SIRAKIDES; JOEL M.
SPIRO; GILCHRIST B. STOCKTON, JR.; WILLIAM N. STOUT; KENNETH M. TAYLOR; MARVEL
WILSON, JR.; HENRI L. WEDELL; CHARLES I. WELLBORN; WILLIAM T. ZANONI; ROGER
ANDERSON; CHARLES G. BENTZIN; PETER A. BENZ; THORTON COOKE; DONALD D. DECENSO;
MARCO DILAURENTI; LYDIA P. DUGAN; ROBERT E. EAKIN; KAROLE E. GLASER; OLIVER R.
GRACE, SR.; JACK D. GRAY; A. CARY HARRISON, III; SIDNEY KAHN; AUDREY W. KATZ;
ROBERT P. KEITH; ALAN W. KRAL; JAMES E. KRAUSE; NANCY KURZ; PAUL W. MCMULLAN;
HENRY A. MITCHELL, JR.; KATHERINE S. NORDHAUS; CHARLES W. OLSON; JAMES J.
O'SULLIVAN, JR.; LIBBY B. POHORYLES; ANTHONY B. SOSKIN; HERMAN G. STURMAN;
ALYSON WARNER; EARL D. WHITTEMORE; HERBERT N. ZACK; JOHN H. ABELES; ALBERT B.
CRUTCHER, JR.; JAMES S. DEELY; STEPHEN E. DELASZLO; DAVID DOLGENOS; LINDA TUFTS
HEBBLER; ROGER W. HOUSE; CHARLES A. JANDA; JEANNE LONG; CHARLES A. MALKEMUS;
ANDREW H. MARKS; ALLISON MERCER; MARTHA LONG NAVARRO; GREGORY J. SALKO; ROBERT
G. SIMS; FREDERICK E. SMITHLINE; JAMES D. TUFTS, II; JAMES D. TUFTS, III;
SHIRLEY R. ZAID; WILSON M. ZILDJIAN, Plaintiffs-Appellants, v. CORPORATION
OF LLOYD'S, also known as Society & Council of Lloyd's, doing
business as Lloyd's of London; COUNCIL OF LLOYD'S; COMMITTEE OF LLOYD'S; SIMON
ARNOLD; MICHAEL COCKELL; DAVID COLERIDGE; PETER DANIELS; HENRY DOBINSON; JOHN
GREIG; RICHARD HAZELL; ANTHONY HINES; GORDON HUTTON; ALAN JACKSON; BRYAN
KELLETT; MURRAY LAWRENCE; ALAN LORD; STEPHEN MERRETT; PETER MILLER; COLIN
MURRAY; ALAN PARRY; DAVID ROWLAND; MICHAEL WADE; BANKSIDE MEMBERS AGENCY LTD.;
D.E. BIGGS; BPC MEMBERS AGENCY LTD.; C.L. JACKSON; FENCHURCH UNDERWRITING
AGENCIES LTD.; C.A.G. KEELING; GARDNER MOUNTAIN & CAPEL CURE AGENCIES LTD.;
J.G. HOGG; GOODA & PARTNERS LTD.; A.W. GOODA; JARDINE LTD.; D.R. WALKER;
J.H. DAVIES UNDERWRITING AGENCY LTD.; J.H. DAVIES; LONDON WALL MEMBERS AGENCY
LTD.; NELSON HURST & MARSH AGENCIES LTD.; B.P. MARSH; 0CTAVIAN UNDERWRITING
LTD.; J.R.T. CHURCH; PW KININMONTH LTD.; R.W. STURGE LTD.; C.E. PARNELL;
SECRETAN UNDERWRITING AGENCIES LTD.; A.D. PILCHER; SEDGEWICK LLOYD'S
UNDERWRITING AGENCIES LTD.; J.M. GORDON; THOS R. MILLER & SON UNDERWRITING
AGENTS LTD.; PETER MILLER; WILLIS, FABER & DUMAN, AGENCIES LTD.; J.N.W.
WOODERSON; ANTON MANAGING AGENCY LTD.; S.R. MERRETT; AJ ARCHER & CO. LTD.;
A.J. ARCHER; BANKSIDE SYNDICATES LTD.; E.E. PATRICK; BARDER & MARSH; J.H.
BARDER; BCP UNDERWRITING AGENCIES LTD.; C.L. JACKSON; CATER ALLEN UNDERWRITING
AGENCY LTD.; B.F. CAUDLE AGENCIES LTD.; B.F. CAUDLE; CHARNAM UNDERWRITING
AGENCIES LTD.; J.R. CHARNAM; H.G. CHESTER & CO. LTD.; R.J. MARTIN;
CHRISTOPHERSON HEATH LTD.; R.E. HEATH; CLAREMOUNT UNDERWRITING AGENCY LTD.;
J.W. OAKES; COX, NEWMAN & HARMAN LTD.; D.E. HARMAN; CUTHBERT, HEATH UNDERWRITING
LTD.; J.W. PRYKE; JH DAVIES UNDERWRITING AGENCY LTD.; J.H. DAVIES; DEVONSHIRE
UNDERWRITING AGENCY LTD.; P.W.G. SUTTLE; NT EVENNETT & PARTNERS LTD.; N.T.
EVENNETT; FELTRIM UA LTD.; P.F. FAGAN; GOODA WALKER LTD.; A.W. GOODA; GRESHAM
UA LTD.; T.G. GREEN; JOHNSON GREENE LTD., Marine/Aviation Syndicates Div.;
G.R.P.N. VALENTINE; J.R.L. YOUELL; HEXAD PARTNERSHIP; MARQUEES OF DOWNSHIRE;
G.W. HUTTON & CO. LTD.; G.W. HUTTON; BPD KELLETT & CO. LTD.; BPD
KELLETT; LONDON WALL MANAGING AGENCIES; R.H. WARRENDER; LONDON RIVER
UNDERWRITING MANAGEMENT LTD.; J.M. POLAND; MERRETT SYNDICATES LTD.; J.R.
ROBSON; MURRAY LAWRENCE & PARTNERS LTD.; W.N.M. LAWRENCE; D.M. HOLMAN;
OCTAVIAN SYNDICATE MANAGEMENT LTD.; D.E. COLERIDGE; R.M. PATEMAN; R.M. PATEMAN
UNDERWRITING AGENCIES LTD.; PETER PEPPER LTD.; P.L. PEPPER; JOHN POLAND LTD.;
T.M. BRADLEY; RD UNDERWRITING AGENCIES LTD.; J.M. DONNER; C.W. ROME
UNDERWRITING AGENCIES LTD.; C.W. ROME; ROSE, THOMPSON, YOUNG LTD.; L.R. SAWYER
LTD.; FLP SECRETAN & CO. LTD.; A.D. PILCHER; STREET LTD.; C.K. MURRAY;
STURGE MARINE SYNDICATE MANAGEMENT LTD.; B.E. BEAGLEY; WELLINGTON UNDERWRITING
AGENCIES LTD.; J.O. PRENTICE; WENDOVER UNDERWRITING AGENCY LTD.; A.D. SHEAD;
ALEXANDER HOWDEN & BECK LTD.; P.M. GRAHAM; D.T. CAREY; CATER ALLEN MEMBERS
AGENCY; D.J. WHITE; CHILTREN UNDERWRITING AGENCIES LTD.; N.A. LEWIS; HARRISON
BROTHERS (U/A) LTD.; D.B.K. HARRISON; JARDINE (LLOYD'S UNDERWRITING AGENTS)
1990 LTD.; KINGSLEY UNDERWRITING AGENCIES LTD.; R.C. KINGSLEY; R.C. HALLAM;
LIME STREET UNDERWRITING AGENCIES LTD.; RAF MACMILLAN & CO.; M.A.
BRECKNELL; RAF MACMILLAN; MOCATTA DASHWOOD MEMBERS AGENTS LTD.; F. DASHWOOD;
MURRAY LAWRENCE MEMBERS AGENCY; W.N.M. LAWRENCE; P.W. KININMONTH; ROSE THOMSON
YOUNG (UNDERWRITING) LTD.; D.H.H. MEACOCK; SCOTT UNDERWRITING AGENCIES LTD.;
G.W. SCOTT; VANGUARD UNDERWRITING AGENCIES, LTD.; T.J. PEPPER; KC WEBB
(UNDERWRITING) LTD.; J.G. HOGG; ARAGORN AGENCIES LTD.; A.J.W.F. WALLACE; AUSTIN
CAUDLE (U/A) LTD.; B.F. CAUDLE; GUEST BARNES (UNDERWRITING AGENCIES) LTD.;
BIRRELL SMITH UNDERWRITING AGENCIES LTD.; CATER ALLEN SYNDICATE MANAGEMENT
LTD.; EDWARD & PAYNE (UNDERWRITING AGENCIES) LTD.; C.H.A. SKEY; JANSON
GREEN LTD.; WETHERELL NON-MARINE DIVISION; G.R.P.N. VALENTINE; J.M.W.P.
WETHERELL; B.P.D. KELLETT; RJ KILN & CO. LTD.; KPH UNDERWRITING AGENCIES
LTD.; D.G. KING; MARK LOVEDAY UNDERWRITING AGENCIES LTD.; MERRETT UNDERWRITING
AGENCY MANAGEMENT LTD.; NEWGREEN UNDERWRITING AGENCIES LTD.; J.R.T. CHURCH;
OXFORD SYNDICATE MANAGEMENT LTD.; ROBERTS & HISCOX LTD.; R.R.S. HISCOX; RD
ROBERTSON UNDERWRITING AGENCY LTD.; L.R. SAWYER; THREE QUAYS UNDERWRITING
MANAGEMENT LTD.; ROBERT KEVILLE; PHILIP WROUGHTON; J.B. MARSHALL; CUTHBERT
HEATH MEMBERS AGENCY LTD.; D. HAZELWOOD; DONNER UNDERWRITING AGENCIES LTD.;
J.G. CURTIS; KILN MEMBERS AGENCY LTD.; D.L. DANN; W.S. STRATHALMOND; SCOTT
CAUDLE HILSUM LTD.; J.D. SCOTT; CASSIDY DAVIS UNDERWRITING LTD.; D.A. PEASE;
CUTLER UNDERWRITING AGENCIES LTD.; D.E. DOWLEN; GRAVETT & TILLING
(UNDERWRITING AGENCIES) LTD.; M.A. GRAVETT; HOLMES HAYDAY (UNDERWRITING AGENCIES)
LTD.; T.J. HAYDAY; KNIGHTSTONE (MANAGING AGENCY) LTD.; G. COOPER; MANDER THOMAS
& COOPER (UNDERWRITING AGENTS) LTD.; C.J. MANDER; MFK UNDERWRITING AGENCY
LTD.; M.C. WATKINS; MIS UNDERWRITING AGENCY LTD.; RHM OUTHWAITE (UNDERWRITING
AGENCIES) LTD.; LORD HAVERS; STEWART & HUGHMAN LTD.; D.C. CRAIG; VENTON
UNDERWRITING AGENCIES LTD.; R.N. ALWEN; WREN SYNDICATE MANAGEMENT LTD.; N.C.
HAYDON; SYNDICATES-2, 10, 15, 17, 28, 31, 33, 37, 40, 47, 48, 51, 52, 53, 62,
65, 79, 80, 97, 102, 103, 104, 105, 108, 109, 112, 122, 123, 138, 144, 153,
156, 162, 164, 179, 182, 183, 185, 190, 197, 203, 204, 205, 206, 207, 209, 210,
212, 216, 218, 219, 225, 227, 228, 229, 234, 235, 253, 254, 255, 256, 257, 264,
270, 271, 272, 282, 288, 290, 293, 295, 296, 298, 299, 304, 305, 309, 310, 314,
317, 318, 319, 321, 322, 323, 329, 330, 331, 332, 340, 342, 349, 350, 362, 363,
366, 370, 375, 376, 397, 382, 384, 386, 387, 388, 396, 397, 401, 404, 406, 417,
418, 421, 428, 435, 437, 439, 445, 448, 454, 456, 457, 463, 469, 471, 483, 484,
488, 490, 498, 500, 503, 505, 506, 508, 509, 510, 512, 527, 529, 530, 535, 536,
540, 542, 544, 545, 546, 552, 554, 557, 560, 561, 566, 570, 573, 575, 577, 582,
584, 588, 601, 602, 603, 604, 609, 613, 623, 625, 633, 635, 636, 648, 657, 658,
660, 661, 662, 674, 685, 694, 697, 702, 711, 718, 724, 726, 727, 732, 733, 735,
740, 741, 744, 745, 760, 764, 780, 782, 785, 787, 794, 799, 800, 803, 807, 808,
816, 820, 824, 831, 833, 836, 839, 843, 847, 850, 851, 860, 861, 866, 868, 872,
877, 887, 892, 896, 901, 904, 907, 913, 919, 920, 923, 925, 926, 929, 932, 939,
942, 947, 950, 955, 957, 958, 959, 960, 963, 965, 979, 980, 982, 989, 994, 998,
1001, 1002, 1003, 1005, 1006, 1007, 1009, 1011, 1014, 1019, 1021, 1023, 1025,
1027, 1028, 1034, 1035, 1036, 1038, 1041, 1046, 1048, 1049, 1052, 1058, 1066,
1067, 1068, 1069, 1079, 1083, 1084, 1085, 1086, 1087, 1091, 1093, 1095, 1096,
1097, 1098, 1101, 1102, 1104, 1105, 1112, 1114, 1117, 1118, 1122, 1125, 1129,
1137, 1139, 1141, 1143, 1144, 1145, 1148, 1151, 1152, 1153, 1156, 1158, 1162,
1163, 1171, 1173, 1176, 1179, 1181, 1182, 1184, AT LLOYD'S OF LONDON,
Defendants-Appellees.
Docket No. 92-9032
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
996 F.2d 1353; 1993 U.S. App. LEXIS 13089; Fed. Sec. L.
Rep. (CCH) P97,458
February 5, 1993, Argued
June 2, 1993, Decided
SUBSEQUENT HISTORY: [**1] As Amended July 7, 1993.
PRIOR HISTORY: Appeal from an order dated June 12, 1992
entered in the United States District Court for the Southern District of New
York, Lasker, J., that dismissed appellants' complaint against the so-called
syndicate defendants on the ground that they lacked legal existence and from a
judgment of that court dated August 25, 1992 that dismissed the complaint
against the other defendants for improper venue.
DISPOSITION: We affirm.
COUNSEL: DALE A. SCHREIBER, New York City (Minna Schrag,
Steven B. Feigenbaum, Adrienne B. Koch, Proskauer Rose Goetz & Mendelsohn,
New York City, of counsel), for Appellants.
TAYLOR R. BRIGGS, New York City (Sheila H. Marshall, LeBoeuf, Lamb, Leiby &
MacRae, New York City, of counsel), for Appellees The Society, Corporation,
Committee and Council of Lloyd's and their individual Internal Members.
JONATHAN C. THAU, New York City (Thomas W. Wilson, Nicholas J. Conca, Fred N.
Knopf, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, of
counsel), for Appellees The Members' Agents. WILLIAM A. MEEHAN, New York City
(Daniel M. Bianca, Leo W. Fraser, III, Jeff Imeri, Karen Wallace, Mendes &
Mount, New York City, of counsel), for Appellees The "Managing Agent
Defendants". CHARLES A. GILMAN, [**2] New York City (Robert A.
Alessi, Marcy A. Siskind, Cahill Gordon & Reindel, New York City, of
counsel), for Appellees The So-Called "Syndicate Defendants".
JUDGES: Before: MESKILL, Chief Judge FEINBERG and WINTER,
Circuit Judges.
OPINIONBY: MESKILL
OPINION:
[*1356] MESKILL, Chief Judge:
Appellants, all American citizens or residents, are more than one hundred
"Names" in the Corporation of Lloyd's (Lloyd's). Loosely speaking,
Names are investors in Lloyd's syndicates, the entities that nominally
underwrite insurance risk. For convenience we will refer to the syndicates as
entities; although this is a disputed issue on appeal, we affirm on a different
basis and therefore need not resolve this issue. Appellant Names (Roby Names)
alleged in their consolidated complaint that they have suffered severe
financial loss as a result of appellees' violations of the Securities Act of
1933, 15 U.S.C. Ё 77a-77bbbb (the Securities Act), the Securities Exchange
Act of 1934, 15 U.S.C. Ё 78a-7811 (the Securities
Exchange Act), and the Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. § 1962 et seq. (RICO). [**3] This opinion, however,
addresses only the Roby Names' contention on appeal that their disputes with
[*1357] Lloyd's and Lloyd's entities should be litigated in the
United States despite a host of contract clauses that appear to bind them to
arbitrate in England under English law. The district court held that those contract
clauses must be enforced and therefore dismissed the Roby Names' complaint for
improper venue. The Roby Names contend that the district court erred because
(1) the clauses by their very terms do not protect certain defendants and do
not cover the substance of appellants' complaints, and (2) the clauses are
unenforceable because they effectively waive compliance with the United States
securities laws, contrary to the antiwaiver provisions of those laws and the
public policy reflected by them. To understand why we disagree with the Roby
Names' arguments it is necessary to understand the structure and operations of
Lloyd's, which we discuss in some detail.
BACKGROUND
Lloyd's is not a company; it is a market somewhat analogous to the New York
Stock Exchange. Lloyd's' governing bodies, the Council and Committee of
Lloyd's, promulgate regulations and enforce compliance therewith.
[**4] There are over 300 syndicates competing within Lloyd's for
underwriting business, each managed by an entity called a Managing Agent. Each
Managing Agent is responsible for its own syndicate's financial well-being; it
tries to attract capital and underwriting business. Managing Agents owe a
contractual duty to Names to manage their syndicates with reasonable care and
skill. Capital comes from Names, who are represented in their dealings with
Lloyd's by Members' Agents (also entities). Members' Agents are obliged to act
in the sole interest of their principal Names. By agreement, the Members'
Agents stand in a fiduciary relationship to their Names. Lloyd's brokers broker
underwriting risk to the syndicates by negotiating with the syndicates' Active
Underwriters, individuals appointed by the syndicates' Managing Agents.
Brokers, Managing Agents, and Members' Agents all compete with their peers in
their respective areas.
While eighty percent of Lloyd's 26,000 Names are English, about 2,500,
representing more than $ 1 billion in capital, are American. The Roby Names
were solicited in the United States by various Lloyd's entities and
representatives. Except for a brief meeting in London--a [**5]
mandatory formality--the entire process by which the Roby Names became Names
took place in the United States. In order to become a Name, an individual had
to pass a "means test." The Roby Names assert that in 1988, by which
time they had all become Names, this test required prospective Names to
maintain a net worth of approximately $ 170,000. By contrast, Lloyd's claims
that Names were required to demonstrate that they were "accredited investors"
under Regulation D, 17 C.F.R. § 230.501(a) (1992), so that any sale of
securities to them would be exempt from the registration requirements of the
Securities Act. See 15 U.S.C. § 77d(2); 17 C.F.R. § 230.506(b) (1992).
While there is evidence that this requirement was established after 1988,
Lloyd's has not pointed to any proof that the requirement was in effect prior
to 1988. Nevertheless, the Securities and Exchange Commission (SEC) has never
insisted that Lloyd's or Lloyd's entities register securities.
Upon becoming a Name, an individual selects from a list of syndicates--with the
aid of only very limited financial information--and decides how much he wishes
to invest in each one. In making these [**6] decisions, Names rely
to a great extent on the advice of their Members' Agents. The profits that
Names earn are in proportion to their capital contributions, and Names bear
unlimited liability for their proportionate losses in each syndicate they join.
Their liability is several, not joint; no Name is ever responsible for the
losses of those fellow Names who comprise the syndicate.
Names are required to enter directly into two agreements and indirectly into
two others. n1 The "General Undertaking" is between a Name and the
Lloyd's' governing bodies [*1358] and contains choice of forum
(England) and choice of law (English) clauses. This undertaking does not
contain an arbitration clause. The "Members' Agent's Agreement" is
between a Name and his Members' Agent and also contains choice of forum
(England), arbitration and choice of law (English) clauses. The Members'
Agent's Agreements specifically authorize the Members' Agents to enter into a
third agreement on behalf of the Names, called the "Managing Agent's
Agreement." This agreement, not signed by the Names themselves, and
apparently often not even signed by the Managing Agents, defines the rights and
obligations of the Managing Agent of [**7] a syndicate and that
syndicate's Names, and also contains choice of forum (England), arbitration and
choice of law (English) clauses. In turn, the Managing Agent's Agreement
authorizes the Managing Agents to enter, on behalf of themselves, the Names and
the Members' Agents, into a "Syndicate and Arbitration Agreement"
which requires disputes related to the affairs of the particular syndicate to
be arbitrated in London.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n1 A slightly different structure existed prior to 1990, but the differences
are irrelevant for purposes of this appeal and affect at most only five of the
109 appellants.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
In their consolidated complaint, the Roby Names allege violations of sections
12(1) and 12(2) of the Securities Act, 15 U.S.C. § 771(1), (2), and section
10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b). In addition, they
allege "controlling person" liability under section 15 of the
Securities Act, 15 U.S.C. § 77o, [**8] and section 20 of the Securities
Exchange Act, 15 U.S.C. § 78t. Finally, using these securities law violations
as predicate acts, the Roby Names allege several violations of RICO. Each cause
of action names as defendants a different combination of the following parties:
Lloyd's, Lloyd's' governing bodies, certain Managing and Members' Agents,
certain individual members of these entities (the Chairs), and certain
syndicates.
By order dated June 12, 1992, Judge Lasker dismissed the complaint against the
"syndicate defendants," finding that they had no separate existence
and therefore could not be sued as entities. By subsequent order dated August
18, 1992, the judge found that the interlocking set of agreements bound the
Roby Names to arbitrate or litigate their disputes in London and dismissed the
complaint in its entirety for improper venue. A judgment dated August 25, 1992
was entered to this effect. The Roby Names appeal from the June 12th order and
the August 25th judgment.
DISCUSSION
The Roby Names maintain that their investments in Lloyd's syndicates constitute
"securities" under the securities laws. We decline to rule on this
question today, [**9] noting only that we have received little
guidance from the SEC on this issue. Instead, we will assume for purposes of
this appeal that the Roby Names' consolidated complaint states cognizable
claims under the securities laws. For the sake of precision, we note that the
assumed sale of a security occurs not when an individual becomes a
Name, but instead when a Name pledges capital to a syndicate.
Nevertheless, we understand the Roby Names to argue that the solicitation
of individuals to become Names is in fact part of the overall process of
soliciting them to pledge capital (i.e., to buy
"securities").
The Roby Names present us with two basic arguments as to why these suits should
be litigated in the United States: (1) the contract clauses, by their terms,
apply neither to the substance of their claims nor to certain defendants; and
(2) the clauses are unenforceable due to the public policy codified in the
securities laws. We find neither of these arguments persuasive.
I. Scope of the Contract Clauses
A. Parties Covered
We believe every defendant in this action, in the words of Judge Lasker, is
either "protected directly by the [contract] clauses or [is
[**10] an] intended beneficiary entitled to enforce them." Roby
v. The Corporation of Lloyd's, No. 91 Civ. 7081, 1992 U.S. Dist. LEXIS
12367, at *14 (S.D.N.Y. Sept. 3, 1992, as amended). We reject, therefore, the
Roby Names' arguments that neither the syndicates, the Managing Agents nor the
individual Chairs of the Managing and Members' Agents may assert the protection
of these clauses.
[*1359] 1. Syndicates
Judge Lasker dismissed the Roby Names' action against the syndicates on the
ground that they had no entity existence. Although the Roby Names dispute this
legal determination, we need not decide the issue because we may of course
affirm the judgment of the district court on any basis that has support in the
record. See I. Meyer Pincus & Assocs. v. Oppenheimer & Co.,
936 F.2d 759, 761 (2d Cir. 1991). Consequently, even if we assume the
syndicates do have entity existence, we would affirm their dismissal on the
basis of improper venue.
Paragraph 2.2 of the General Undertaking states, in pertinent part:
Each party hereto irrevocably agrees that the courts of England shall have
exclusive jurisdiction to settle any dispute [**11] and/or
controversy of whatsoever nature arising out of or relating to the [Name's]
membership of, and/or underwriting of insurance business at, Lloyd's.
Paragraph 2.1 is equally broad and provides for the application of English law.
The syndicates are third-party beneficiaries of this agreement. As Professor
Corbin has said, a third party will have an enforceable right "if the
promised performance will be of pecuniary benefit to him and the contract is so
expressed as to give the promisor reason to know that such benefit is
contemplated by the promisee as one of the motivating causes of his making the
contract." 4 Arthur L. Corbin, Corbin on Contracts § 776, at 18
(3d ed. 1967). Here, the syndicates have a pecuniary interest in the certainty
and consistency of litigating in one nation's courts under one nation's laws.
The extremely broad language of the General Undertaking should make it clear
that Lloyd's' intent was to benefit all Lloyd's entities, particularly because
potential actions against Lloyd's itself are limited in nature and the broad
language of paragraphs 2.1 and 2.2 otherwise would be sorely overbroad.
Moreover, paragraph 1, which is the only other substantive [**12]
provision in the General Undertaking, requires Names to abide by the provisions
of any other contract authorized by the Council (including, e.g., the
Members' Agent's Agreement). We believe this indicates that the General
Undertaking was meant to govern the Names' general obligations within the
entire Lloyd's community.
As a fallback position, the Roby Names rightly observe that Judge Lasker
refused to issue an order confirming that his decision dismissing the action
against the other defendants for improper venue applied equally to the
syndicate defendants. However, the judge offered no explanation for his refusal
and we believe he was simply exercising cautious restraint rather than
definitively ruling that the improper venue decision did not apply to the
syndicates. Because we believe the reasoning of the venue decision is equally
applicable to the syndicate defendants, we hold that the syndicates, if they
are entities, are also entitled to the benefits of the forum selection and
choice of law clauses.
The General Undertaking contains no arbitration clause, and therefore we do not
decide today whether the Roby Names are bound to arbitrate with the syndicates.
Whether the [**13] Syndicate and Arbitration Agreement or some
other agreement may be interpreted to require the Roby Names to arbitrate is a
question that should be decided under English law in an English court pursuant
to the General Undertaking.
2. Managing Agents
The Roby Names contend that they are not bound by the Managing Agent's
Agreements because neither they nor the Managing Agents ever signed them.
However, the parties clearly assented to be bound by the Managing Agent's
Agreements. First, the Roby Names signed the Members' Agent's Agreements which
authorize their Members' Agents to enter into Managing Agent's Agreements on
their behalf. Second, they signed the General Undertaking which requires them
to abide by all of Lloyd's bylaws. Bylaw 8 prohibits any Name from underwriting
insurance at Lloyd's other than pursuant to the standard agreements. By
underwriting insurance, the Roby Names have demonstrated their intent to be
bound by the Managing Agent's Agreements. Similarly, the Managing Agents, by
acting in their capacity in accordance with the web of standard agreements,
clearly have [*1360] demonstrated their intent to abide by the
provisions of the Managing Agent's Agreements.
3. Individual [**14] Chairs
The Roby Names next contend that the individual Chairs of the Members' and
Managing Agents are neither signatories to nor third-party beneficiaries of any
agreement with the Roby Names and therefore that they must litigate in federal
court. We agree with the district court, however, that the individual Chairs
are entitled to rely on the contract clauses incorporated into their employers'
agreements.
Courts in this and other circuits consistently have held that employees or
disclosed agents of an entity that is a party to an arbitration agreement are
protected by that agreement. See, e.g., Scher v. Bear Stearns & Co.,
723 F. Supp. 211, 216-17 (S.D.N.Y. 1989); Brener v. Becker Paribas, Inc.,
628 F. Supp. 442, 451 (S.D.N.Y. 1985); Nesslage v. York Securities, Inc.,
823 F.2d 231, 233-34 (8th Cir. 1987). The Roby Names argue that, unlike those
cases, the complaints against the individual Chairs are distinct from those
against their employers. They contend that the Chairs have not been sued for
acts carried out on behalf of the Members' and Managing Agents (Agents) or in
violation of the [**15] Agents' contractual obligations to the Roby
Names. Instead, they have been sued as "controlling persons" under
the securities laws.
We believe that this is a distinction without a legal difference. The
complaints against the individual Chairs are completely dependent on the
complaints against the Agents. Whether the individual Chairs are disclosed
agents or controlling persons, their liability arises out of the same misconduct
charged against the Agents. If the scope of the Agents' agreements includes the
Agents' misconduct, it necessarily includes the Chairs' derivative misconduct.
Moreover, we believe that the parties fully intended to protect the individual
Chairs to the extent they are charged with misconduct within the scope of the
agreements. If it were otherwise, it would be too easy to circumvent the
agreements by naming individuals as defendants instead of the entity Agents
themselves.
B. Disputes Covered
"[A] party cannot be required to submit to arbitration any dispute which
he has not agreed so to submit." AT&T Technologies, Inc. v.
Communications Workers of America, 475 U.S. 643, 648, 89 L. Ed. 2d 648,
106 S. Ct. 1415 (1986). The Roby Names contend essentially that
[**16] the forum selection and arbitration clauses apply only to
disputes arising from the conduct of the defendants as managers,
representatives or regulators. Because this conduct can occur only after the
"securities" have been sold, the Roby Names claim that they did not
agree to arbitration of, or English jurisdiction over, complaints pertaining to
the sale of those "securities." They present two basic arguments: (1)
because the choice of law clauses require the application of English law, the
Roby Names' United States statutory claims cannot possibly be covered under the
agreements, and (2) resolution of their claims does not require the
construction of the agreements because the Roby Names have not alleged any
breach of contract, and the language of the arbitration and forum selection
clauses is not broad enough to cover their claims. We reject both arguments.
1. Application of English Law
It defies reason to suggest that a plaintiff may circumvent forum selection and
arbitration clauses merely by stating claims under laws not recognized by the
forum selected in the agreement. A plaintiff simply would have to allege
violations of his country's tort law or his country's statutory
[**17] law or his country's property law in order to render nugatory
any forum selection clause that implicitly or explicitly required the
application of the law of another jurisdiction. We refuse to allow a party's
solemn promise to be defeated by artful pleading. See Coastal Steel Corp.
v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 203 (3d Cir.), cert.
denied, 464 U.S. 938, 104 S. Ct. 349, 78 L. Ed. 2d 315 (1983). In the
absence of other considerations, the agreement to submit to arbitration or the
jurisdiction of the English courts [*1361] must be enforced even if
that agreement tacitly includes the forfeiture of some claims that could have
been brought in a different forum.
2. Scope of the Agreements
Of course, the Roby Names are quite right that if the substance of their
claims, stripped of their labels, does not fall within the scope of the
clauses, the clauses cannot apply. However, they must make this argument in the
face of strong public policy in favor of forum selection and arbitration
clauses. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
473 U.S. 614, 626, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985); The Bremen v.
Zapata Off-Shore Co., 407 U.S. 1, 15, 32 L. Ed. 2d 513, 92 S. Ct. 1907
(1972). [**18] Indeed, an order to arbitrate "should not be
denied unless it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the asserted
dispute." United Steelworkers of America v. Warrior & Gulf
Navigation Co., 363 U.S. 574, 582-83, 4 L. Ed. 2d 1409, 80 S. Ct. 1347
(1960).
There is ample precedent that the scope of clauses similar to those at issue
here is not restricted to pure breaches of the contracts containing the
clauses. The Managing and Members' Agent's Agreements speak, with respect to
the arbitration clauses, in terms of "disputes, differences, questions or
claims relating to" the agreements and, with respect to the forum
selection clauses, in terms of submission for "all purposes of and in
connection with" the agreements (emphasis added). In Bense v.
Interstate Battery System of America, 683 F.2d 718, 720 (2d Cir. 1982), we
held that a forum selection clause that applied to "causes of action
arising directly or indirectly from [the agreement]" covered federal
antitrust actions. Similarly, the Supreme Court in Scherk v. Alberto-Culver
Co., 417 U.S. 506, 41 L. Ed. 2d 270, 94 S. Ct. 2449, reh'g
[**19] denied, 419 U.S. 885, 95 S. Ct. 157, 42 L. Ed. 2d
129 (1974), held that controversies and claims "arising out of" a
contract for the sale of a business covered securities violations related to
that sale. Id. at 519-20. We find no substantive difference in the
present context between the phrases "relating to," "in
connection with" or "arising from." We therefore reject the Roby
Names' contention that only allegations of contractual violations fall within
the scope of the clauses.
In the instant case the conduct surrounding the underwriting activities at
Lloyd's is integrally related to the sale of Lloyd's "securities"
because the "security" is essentially equivalent to the underwriting
of risk or the pledging of capital. In order to underwrite risk, a Name is
required by Lloyd's' bylaws to enter into the Managing and Members' Agent's
Agreements. He may not underwrite risk otherwise; that is, he may not "buy
the security" otherwise. Misconduct with respect to the sale of these
"securities" necessarily "relates to" these required
agreements.
It is perhaps even more persuasive that the agreements are in fact not limited
to the conduct of business but also [**20] cover the raising of
capital. Thus, for instance, the agreements contain certain disclosure
requirements. In addition, they establish certain duties of the Agents with
respect to the Name and because the agreements are entered into prior
to the underwriting of risk, these duties are owed with respect to the raising
of capital. We believe the agreements are clearly intended to, and in fact do,
govern the relationships between Agents and Names with respect to the purchase
and sale of Lloyd's "securities." Because the gist of the Roby Names'
allegations relates to the sale of those "securities," we hold that
their claims "relate to" the Agent's Agreements.
Similarly, and even more forcefully, the broad language of the forum selection
clause of the General Undertaking covers the Roby Names' claims at least
against Lloyd's' governing bodies. Those claims are undoubtedly related to the
Roby Names' "membership of, and/or underwriting of insurance business at,
Lloyd's."
II. Application of the Securities Laws
The Roby Names argue that the public policy codified in the antiwaiver
provisions of the securities laws renders unenforceable any agreement that
effectively eliminates [*1362] compliance [**21] with
those laws. The Securities Act provides that "any . . . stipulation . . .
binding any person acquiring any security to waive compliance with any
provision of this subchapter . . . shall be void." 15 U.S.C. § 77n.
Similarly, the Securities Exchange Act states, "any . . . stipulation . .
. binding any person to waive compliance with any provision of this chapter or
of any rule or regulation thereunder . . . shall be void." 15 U.S.C. §
78cc(a). According to the undisputed testimony of a British attorney, neither
an English court nor an English arbitrator would apply the United States securities
laws, because English conflict of law rules do not permit recognition of
foreign tort or statutory law. From this, the Roby Names conclude that the
contract clauses work to waive compliance with the securities laws and
therefore are void.
We note at the outset that Wilko v. Swan, 346 U.S. 427, 98 L. Ed. 168,
74 S. Ct. 182 (1953), has been squarely overruled. See Rodriguez de Quijas
v. Shearson/American Express, 490 U.S. 477, 484, 104 L. Ed. 2d 526, 109 S.
Ct. 1917 (1989); see also Shearson/American Express v. McMahon, 482
U.S. 220, 96 L. Ed. 2d 185, 107 S. Ct. 2332, [**22] reh'g
denied, 483 U.S. 1056, 97 L. Ed. 2d 819, 108 S. Ct. 31 (1987) (asserting
that the assumptions underlying Wilko are no longer valid). Wilko
held that an agreement to arbitrate future controversies was void under the
antiwaiver provision of the Securities Act. We do not doubt that judicial
hostility to arbitration has receded dramatically since 1953 and that the
arbitral forum is perfectly competent to protect litigants' substantive rights.
In the words of the Mitsubishi Court, quoted by both the Rodriguez
and McMahon Courts, "by agreeing to arbitrate a statutory claim,
a party does not forgo the substantive rights afforded by the statute; it only
submits to their resolution in an arbitral, rather than a judicial,
forum." 473 U.S. at 628. If the Roby Names objected merely to the choice
of an arbitral rather than a judicial forum, we would reject their claim
immediately, citing Rodriguez and McMahon. However, the Roby
Names argue that they have been forced to forgo the substantive protections
afforded by the securities laws, not simply the judicial forum. We therefore do
not believe that Rodriguez and McMahon are controlling
[**23] and must look elsewhere to determine whether parties may
contract away their substantive rights under the securities laws.
The Tenth Circuit recently addressed this exact issue in a similar context in Riley
v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.), cert.
denied, 121 L. Ed. 2d 584, 113 S. Ct. 658 (1992). Relying primarily on
four Supreme Court precedents, Carnival Cruise Lines v. Shute, 113 L.
Ed. 2d 622, 111 S. Ct. 1522 (1991); Mitsubishi, 473 U.S. at 614; Scherk,
417 U.S. at 506; The Bremen, 407 U.S. at 1, the Riley Court
concluded that "when an agreement is truly international, as here, and
reflects numerous contacts with the foreign forum, the Supreme Court has quite
clearly held that the parties' choice of law and forum selection provisions
will be given effect." 969 F.2d at 957; see also Bonny v. Society of
Lloyd's, 784 F. Supp. 1350, 1353 (N.D. Ill. 1992) (drawing the same
conclusion). While we agree with the ultimate result in Riley, we are
[**24] reluctant to interpret the Supreme Court's precedent quite
so broadly.
A. Presumption of Validity
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. See, e.g., The Bremen, 407
U.S. at 15. n2 In The Bremen, the [*1363] 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. Id. at 9. 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. See
Mitsubishi, 473 U.S. at 629. 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
[**25] 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. Carnival Cruise Lines, 111 S. Ct. at 1527.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n2 The analysis is no different for the arbitration clauses. Indeed, an
arbitration clause is merely a specialized type of forum selection clause. See
Scherk, 417 U.S. at 519. We might have referred to the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, opened for
signature June 10, 1958, 21 U.S.T. 2517 (United States entered on December
29, 1970), reprinted in 9 U.S.C. Ё
201-08 (the Treaty), for further support with respect to the arbitration
clauses; however, because we are not entirely persuaded that the Treaty applies
in the securities context, we prefer to rest our decision on different grounds.
Because we understand the Roby Names to complain primarily that the United
States securities laws will not be applied and not that the arbitration forum
is particularly inappropriate In their case, we do not believe a detailed
analysis of the Treaty is necessary.
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[**26]
This presumption of validity may be overcome, however, by a clear showing that
the clauses are "'unreasonable' under the circumstances." The
Bremen, 407 U.S. at 10. The Supreme Court has construed this exception
narrowly: forum selection and choice of law clauses are
"unreasonable" (1) if their incorporation into the agreement was the
result of fraud or overreaching, 111 S. Ct. at 1528; 407 U.S. at 12-13; (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, 407 U.S. at 18; (3) if the fundamental unfairness of the chosen
law may deprive the plaintiff of a remedy, 111 S. Ct. at 1528; or (4) if the
clauses contravene a strong public policy of the forum state, 407 U.S. at 15.
In this case, we can easily dispose of the first two factors. The Roby Names do
not contend that they were fraudulently induced into agreeing to the forum
selection, choice of law or arbitration clauses. Nor do we believe it gravely
inconvenient [**27] for the Roby Names to litigate in London; they
found it convenient enough to travel there for their mandatory interviews, and,
in any event, many of them presently are prosecuting actions there. Moreover,
nothing in the record suggests that the English courts would be biased or
otherwise unfair, and United States courts consistently have found them to be
neutral and just forums. See, e.g., Syndicate 420 at Lloyd's London v.
Early American Ins. Co., 796 F.2d 821, 829 (5th Cir. 1986). Finally, the
Roby Names have not presented any convincing evidence that the chosen arbitral
forum would be biased in any way.
As to the third factor, we note that it is not enough that the foreign law or
procedure merely be different or less favorable than that of the United States.
See, e.g., Mitsubishi, 473 U.S. at 629; Medoil v. Citicorp,
729 F. Supp. 1456, 1460 (S.D.N.Y. 1990). Instead, the question is whether the
application of the foreign law presents a danger that the Roby Names "will
be deprived of any remedy or treated unfairly." Piper Aircraft Co. v.
Reyno, 454 U.S. 235, 254-55, 70 L. Ed. 2d 419, 102 S. Ct. 252 (1981),
[**28] reh'g denied, 455 U.S. 928, 71 L. Ed. 2d 474, 102
S. Ct. 1296 (1982) (emphasis added) (in forum non conveniens context).
As we explain below in section C, we believe the Roby Names have ample remedies
under English law.
B. Public Policy
We depart somewhat from the Riley Court with respect to the fourth
factor. We believe that there is a serious question whether United States
public policy has been subverted by the Lloyd's clauses. In this section we
explain our concerns; in section C below we resolve those concerns. Ultimately,
we hold that the presumption of validity has not been overcome.
The Supreme Court in The Bremen wrote, "[a] contractual
choice-of-forum clause should be held unenforceable if enforcement would
contravene a strong public policy of the forum [*1364] in which
suit is brought." 407 U.S. at 15. By including antiwaiver provisions in
the securities laws, Congress made clear its intention that the public policies
incorporated into those laws should not be thwarted.
The framers of the securities laws were concerned principally with reversing
the common law rule favoring "caveat emptor." See, e.g., SEC v.
Arthur Young & Co., 190 U.S. App. D.C. 37, 584 F.2d 1018, 1025 n.51
(D.C. Cir. 1978), [**29] cert. denied, 439 U.S. 1071, 59
L. Ed. 2d 37, 99 S. Ct. 841 (1979). To this end, the securities laws are aimed
at prospectively protecting American investors from injury by demanding
"full and fair disclosure" from issuers. See, e.g., Blue Chip
Stamps v. Manor Drug Stores, 421 U.S. 723, 727-28, 44 L. Ed. 2d 539, 95 S.
Ct. 1917, reh'g denied, 423 U.S. 884, 46 L. Ed. 2d 114, 96 S. Ct. 157
(1975). Private actions exist under the securities laws not because Congress
had an overwhelming desire to shift losses after the fact, but rather because
private actions provide a potent means of deterring the exploitation of
American investors. See, e.g., Randall v. Loftsgaarden, 478 U.S. 647,
664, 92 L. Ed. 2d 525, 106 S. Ct. 3143 (1986); Abrahamson v. Fleschner,
568 F.2d 862, 872 (2d Cir. 1977), cert. denied, 436 U.S. 913, 56 L.
Ed. 2d 414, 98 S. Ct. 2253 (1978). We believe therefore that the public
policies of the securities laws would be contravened if the applicable foreign
law failed adequately to deter issuers from exploiting American investors.
In this sense, the securities laws somewhat resemble the antitrust laws at
issue in Mitsubishi. The Mitsubishi Court enforced
[**30] a clause providing that all disputes arising under a
contract between a Puerto Rican corporation and a Japanese corporation be
submitted for arbitration by the Japan Commercial Arbitration Association. The
Court recognized that private actions under the Sherman Act, 15 U.S.C. § 1 et
seq., play a "central role" in promoting the national interest
in a competitive economy, 473 U.S. at 634-35. Like private actions in the securities
context, private actions under the Sherman Act serve primarily a deterrent
purpose. Id. at 635. Nevertheless, the Mitsubishi Court held
that a Japanese arbitration panel, applying United States antitrust law,
adequately would further the deterrent purpose of the Sherman Act, despite the
panel's lack of allegiance to United States' interests. Id. at 636-37.
The Court indicated quite clearly in dicta, however, that "in the event
the choice-of-forum and choice-of-law clauses operated in tandem as a prospective
waiver of a party's right to pursue statutory remedies for antitrust
violations, we would have little hesitation in condemning [**31]
the agreement as against public policy." Id. at 637 n.19. n3
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n3 Scherck, decided eleven years before Mitsubishi, is not to the
contrary. Scherk v. Alberto-Culver Co., 417 U.S. 506, 41 L. Ed. 2d
270, 94 S. Ct. 2449, reh'g denied, 419 U.S. 885, 42 L. Ed. 2d 129, 95
S. Ct. 157 (1974). Although the Scherck Court enforced an arbitration
clause which contained a choice of law provision (Illinois law), the focus of
the opinion is almost exclusively on the validity of the arbitration
provision. Nowhere in the opinion is it suggested that a choice of law clause
invariably trumps the public policies underlying the securities laws. In any
event, Illinois law is certainly adequate to protect the substantive rights of
Alberta-Culver, the American company that allegedly was defrauded in its purchase
of Scherck, a German company. Indeed, viewed practically, the complaint was
essentially a breach of contract action masquerading as a statutory
misrepresentation claim. The Court could confidently rely on Illinois law to
protect any public policy of the United States implicated in that action.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**32]
We are concerned in the present case that the Roby Names' contract clauses may
operate "in tandem" as a prospective waiver of the statutory remedies
for securities violations, thereby circumventing the strong and expansive
public policy in deterring such violations. We are cognizant of the important
reasons for enforcing such clauses in Lloyd's' agreements. Lloyd's is a British
concern which raises capital in over 80 nations. Its operations are clearly
international in scope. There can be no doubt that the contract clauses
mitigate the uncertainty regarding choice of law and forum inherent in the
multinational affairs of Lloyd's. Comity also weighs in favor of enforcing the
clauses. Yet we do not believe that a United States court can in good
conscience enforce clauses that subvert a strong national policy, particularly
one that for over fifty years has served as [*1365] the foundation
for the United States financial markets and business community. In this case,
the victims of Lloyd's' alleged securities violations are hundreds of
individual American investors, most of whom were actively solicited in the
United States by Lloyd's representatives. We believe that if the Roby Names
were able [**33] to show that available remedies in England are
insufficient to deter British issuers from exploiting American investors
through fraud, misrepresentation or inadequate disclosure, we would not
hesitate to condemn the choice of law, forum selection and arbitration clauses
as against public policy. For the reasons set forth in section C below,
however, we conclude that the Roby Names have failed to make such a showing.
C. Availability of Adequate Remedies
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. We address the fraud and
misrepresentation claims first.
1. Fraud and Misrepresentation
English common law provides remedies for knowing or reckless deceit, negligent
misrepresentation, and even innocent misrepresentation. Affidavit of Anthony
Colman P 20. Moreover, the Misrepresentation Act of 1967 provides some
additional statutory remedies. Id. While the Roby Names might have
been able to sue "controlling persons" under the United States
[**34] securities laws and establish liability without proving
reliance, it certainly is not unfair for English law to require proof of actual
misconduct and reliance. Furthermore we are skeptical that "controlling
person" liability could be established against many of the defendants
here. For instance, we question whether the Lloyd's' governing bodies have
"control" over other Lloyd's entities in the sense intended under the
securities laws. See, e.g., 17 C.F.R. § 230.405 (1992) (defining
"control"); Harrison v. Dean Witter Reynolds, 974 F.2d 873,
881 (7th Cir. 1992).
In any event, the available remedies are adequate and the potential recoveries
substantial. This is particularly true given the low scienter requirements
under English Misrepresentation law (e.g., negligence,
"innocence"). Moreover, together with the contractual obligations
imposing certain fiduciary and similar duties on Members' and Managing Agents,
we believe that the available remedies and potential damages recoveries suffice
to deter deception of American investors.
In this context we also note that many of the so-called
"misrepresentations" the Roby Names allege are really complaints
[**35] about the conduct of Lloyd's' affairs rather than complaints
about fraudulent reporting. Thus, for instance, while it may be true that the
defendants kept insufficient reserves and permitted "questionable
accounting practices," failure to convey this information to the Roby
Names is more a violation of the letter of the securities laws than their spirit,
because the complaints really address Lloyd's' misconduct after securities are
sold. We do not believe that these complaints implicate the public policy of
the securities laws.
Finally, although, as the Roby Names observe, section 14 of the Lloyd's Act of
1982 exempts the Corporation of Lloyd's (and its officers and employees) from
liability, no other entity within Lloyd's is exempt. Moreover, even the
Corporation of Lloyd's is not exempt for acts "done in bad faith."
Furthermore, as a self-regulating organization, we cannot say that Lloyd's' own
bylaws will not insure the honesty and forthrightness that American investors
deserve and expect. We conclude that the Roby Names have adequate remedies in
England to vindicate their statutory fraud and misrepresentation claims.
2. Disclosure
We turn now to address whether adequate [**36] remedies are
available to deter issuers from issuing securities without disclosing
sufficient information to permit investors to make informed decisions. We
believe that this policy concern is somewhat diluted in this case because the
SEC consistently has exempted Lloyd's from the registration requirements of the
securities laws. Apparently the SEC has [*1366] decided that
Lloyd's' means test meets the requirements of Regulation ID. We are extremely
reluctant to dispute the SEC's apparent judgment that the Roby Names are
sophisticated enough that they do not need the disclosure protections of the
securities laws.
In any event, English law in this case provides Lloyd's entities with an
adequate inducement to disclose material information to American investors:
failure to do so gives rise to liability for breach of contract. For instance,
the Members' Agent's Agreement requires each Members' Agent
"promptly" to provide Names with a host of information, and to
disclose . . . in good time any information in its possession relating
to any of the Contracted Syndicates, or to any syndicate which the Agent has
advised the Name to join . . . which could reasonably be expected to
influence [**37] the Name in deciding whether to
become or remain a member of, or to increase or reduce his participation in,
any such syndicate, and use its reasonable endeavours to obtain any such
information.
(emphasis added). Similarly, paragraph 4.2(i) of the Managing Agent's Agreement
requires Managing Agents to disclose "in good time" relevant
information to the Name or his Members' Agent. The Roby Names, therefore,
certainly can allege breach of contract claims under English law. In addition,
under their contract Members' Agents owe certain fiduciary duties to Names
which provide a further basis for suit.
While we do not doubt that 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, we are convinced that there
are ample and just remedies under English law. Moreover, we cannot say that the
policies underlying our securities laws will be offended by the application of
English law. In this case, the Roby Names have entered into contracts that
require substantial disclosure by both the Members' and Managing Agents. The
specter of liability for breach of [**38] contract should act as an
adequate deterrent to the exploitation of American investors. The well
developed English law of fraud and misrepresentation likewise adequately
requires that the disclosure be "fair."
III. Application of RICO
That RICO provides treble damages and seeks to deter persistent misconduct does
not dissuade us from our view that the Roby Names' contract clauses must be
enforced. As we have explained, the Roby Names have adequate potential remedies
in England and there are significant disincentives to deter English issuers
from unfairly exploiting American investors. Although the remedies and
disincentives might be magnified by the application of RICO, we cannot say that
application of English law would subvert the policies underlying that statute.
CONCLUSION
For the foregoing reasons we hold that the Roby Names' contract clauses cover
the scope of, and the parties named in, the complaint and that the Roby Names
have remedies under English law adequate not only to vindicate their
substantive rights but also to protect the public policies established by the
United States securities laws.
The judgment and order of the district court are affirmed.