SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: IAS PART 49
THE SOCIETY OF LLOYD'S,
Index No. 604065/98
LORRAINE GRAVES GRACE and
OLIVER R. GRACE,
Herman Cahn, J.:
Plaintiff The Society of Lloyd's ("Lloyd's") moves, pursuant to CPLR ¤ 3213 and E 5303, for an order granting summary judgment in lieu of complaint enforcing final judgments entered by the High Court of Justice, Queen's Bench Division, in London, England on March 11, 1998, against defendants Lorraine Graves Grace and Oliver R. Grace (hereinafter "Graces") in the amounts of UK 206,685.37 and UK 269,293.70, respectively, based on the Graces' participation as insurance underwriters in the Lloyd's market.
Defendants oppose the motion on the grounds that they were fraudulently induced to participate in the Lloyd's market and the English judgments were obtained by Lloyd's in violation of the Graces' rights to due process. For the reasons stated below, the motion is granted.
Defendant Lorraine Grace became a member of a Lloyd's syndicate, i.e, a Name, on January 1, 1979. Her son, defendant Oliver Grace Jr., became a Name on January 1, 1986. The Graces acknowledge that the forms they signed warned them that their liability was unlimited and that insurance underwriting was a risky venture in which they could lose or make money in a given year or in a given syndicate. In order to properly understand their claims and defenses, some background information as to Lloyd's is necessary.
Lloyd's is a large and complex insurance market composed of numerous underwriting syndicates, which, for more than three hundred years, has offered insurance and reinsurance of risks all over the world. Lloyd's itself is not an insurer and does not underwrite insurance. Rather, pursuant to a succession of parliamentary Acts (the Lloyd's Acts of 1871-1982), Lloyds regulates the competition among its member syndicates for underwriting business. (See Richards V. Lloyd's of London 135 F.3d 1289, 1291 [9th Cir.], cert. denied, ___ US ___, 119 S.Ct. 365, 142 L.Ed.2d 301 ). Lloyd's is governed by two governing bodies, the Council and Committee of Lloyd's, which promulgate regulations and enforce compliance therewith. (See, Roby v. corporation of Lloyd's, 996 F.2d 1353, 1357 [2d Cir.], cert. denied, 510 US 945 ).
There are currently more than three hundred syndicates within the Lloyd's market, many of which specialize in underwriting specific types of risks. The syndicates themselves are composed of individuals, called "Names", who group together to underwrite the risks and provide the capital for such underwriting. By forming syndicates, the Names are able to underwrite larger risks than they could as individuals.
Each syndicate within the Lloyd's market is managed by a Managing Agent, whose responsibilities include attracting both capital and underwriting business. (See, Roby v Corporation of Lloyd's, supra at 1357). The Managing Agent owes a contractual duty to the Names to manage the syndicate with reasonable care and skill (See, id.) Originally, Managing Agents were also responsible for recruiting new Names to the market. (See The Society of Lloyd's v. Ashenden, ___ F.Supp. ___, 1999 WL 284775 [N.D. Ill. 1999] at 3). However, since the 1960's, individuals known as "Members' Agents" have served to recruit new Names.
(See id.). The Members' Agents also assist Names in selecting syndicates and provide certain administrative services, including accounting, tax and investment assistance. (See, id.)
In order to become a Name, an individual must provide proof of his or her financial means and deposit an irrevocable letter of credit in favor of Lloyd's. (See, Richards v. Lloyd's of London, supra, at 1292). The individual must also travel to England to acknowledge the attendant risks of participating in a syndicate and sign a General undertaking which, among other things, contains choice of forum (England) and choice of law (English) clauses. (See, id.) Specifically, those clauses state that:
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....
By signing the General undertaking, each Name also agrees, in paragraph 1,
to comply with the provisions of Lloyd's Acts 1871-1982, any subordinate legislation made or to be made thereunder, and any direction given or provision or requirement made or imposed by the Council or any person(s) or body acting on its behalf pursuant to such legislative authority and shall become a part to, and perform and observe all the terms and provision of any agreements of other instruments as may be prescribed and notified to the Member or his underwriting agent by or under the authority of the Council.
In addition to executing the General Undertaking, each prospective Name enters into a "members' Agent's Agreement" which establishes a fiduciary relationship between the members' Agent and the Name. This agreement contains a choice of forum clause (England), as well as arbitration and choice of law (English) clauses. (See Roby v Corporation of Lloyd's, supra at 1358) Additionally, the Members Agent's Agreement specifically authorizes the Members' Agents to enter into a third agreement on behalf of the Name, called the "Managing Agent's Agreement." (See, id.) That agreement, which is apparently not signed by the Names themselves, "defines the rights and obligations of the Managing Agent of a syndicate and that syndicate's Names, and also contains choice of forum (England), arbitration and choice of law (English) clauses." (Id.). "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." (Id.)
Once an individual becomes a Name, he or she is permitted to participate in more than one syndicate and many Names do so in order to spread their risk over several different types of insurance. (See, Richards v. Lloyd's of London, supra at 1292). As of 1996, Lloyd's had approximately 34,000 Names, from 80 different countries. (See, Allen v. Lloyd's of London, 94 F.3d 923, 927 [4th Cir. 1996]) This included more than 3000 Americans who represented more than one billion dollars in capital. (See, id.; Roby v. Corporation of Lloyd's, E, at 1357).
Names can potentially receive profits from two sources: 1) underwriting profits, i.e. the amount by which the premiums exceed the claims; and 2) investment profits on a premium trust fund. (See, The Society of Lloyd's v. Ashenden, supra, at 2). Names earn profits in proportion to their capital contributions. (See, Roby v. Corporation of Lloyd's, supra at 1357). However, Names also bear unlimited liability for the proportionate losses of 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." (Id.). Thus, "When a Name undertakes an underwriting obligation, that Name is responsible only for his share of an agency's losses; however, his liability is unlimited for that share." (Richards V. Lloyd's of London, supra at 1292). It has been stated that Names are committed to cover losses from their personal assets "down to their last cufflinks". (Allen v. Lloyd's of London, supra at 926).
In addition to the Names' assets, the stability of the Lloyd's market is also assured by a Central Fund, which is created from assessments of Names. The market's managing body, the Council of Lloyd's, controls and maintains these funds to disburse to insureds when Names default. (See, id.)
Each syndicate in the Lloyd's market is a one year venture. During that year, the syndicate accepts premiums and issues policies. On December 31st the syndicate stops accepting new business. Although the syndicate is a one year venture, it operates under a three year accounting cycle. (see, id. at 927). At the end of the third year after a given syndicate is formed, its underwriting profits and losses for the given year are calculated. (see id.). Customarily, the syndicate's estimated liabilities are then reinsured by another syndicate. (See, id.) This procedure allows Lloyd's to reinsure undischarged risks in order to close the account for the given year. (See, id.) - However, "when the magnitude of potential liabilities for a syndicate cannot reasonably be estimated at the end of three years, the syndicate cannot reinsure them, and the participating Names remain liable on their undertaking." (id.).
It is undisputed that Lloyd's has been profitable for most of its long existence. (E, Haynsworth v. The Corporation, 121 F.3d 956, 960 [5th Cir.1997), cert. denied ___ us ___ , 118 S.Ct. 1513, 140 L.Ed.2d 666 [1998) However, at some point during the late 1980's and early 1990's, Lloyd's began experiencing unusually large losses stemming from asbestos and pollution claims, as well as claims from a series of catastrophic events, including Hurricane Hugo and the bombing of Pan Am Flight 103. (See, Haynsworth v. The Corporation, supra at 960; Allen v. Lloyd's of London, supra at 927). The losses caused by these events was far greater than the amounts of premiums that had been collected. In fact, Lloyd's has estimated that its losses for the years before 1993 will likely exceed $22 billion. (See, Haynsworth v. The Corporation, supra at 960; Allen v. Lloyd's of London, supra at 927).
The massive losses sustained eventually spawned large numbers of lawsuits, including many in the united States. Many of these suits were commenced by Names, including the Graces, who, among other things, accused managing agents arid Members' Agents of mismanagement in assessing risks and of fraud in assessing and disclosing the risks to Names when they were choosing syndicates. (See, Allen V. Lloyd's of London, supra at 927). The Names claimed that they had been fraudulently induced to join syndicates without being warned that they would be exposed to potentially massive liability for so-called "long-tail" claims such as asbestos and pollution claims.
One of the central issues in these cases was the viability of the forum selection and choice of law clauses contained in the General Undertaking which required the Names to litigate all their claims in England, subject to English law. The Names argued, among other things, that enforcement of these clauses would violate united States public policy because it would constitute a waiver of their rights to protection under the anti-fraud provisions of the United States' securities laws.
Despite the Names' objections, the forum selection and choice of law clauses have withstood repeated scrutiny in United States courts In tact, these clauses have already been upheld in seven federal circuits. (see, e.g. Stamm V Barclays Bank of New York, 153 F.3d 30 [2d Cir. 1998]; Roby v. Corporation of Lloyd's, 996 F.2d 1353, [2d Cir.], cert. denied, 510 US 945  Richards v. Lloyd's of London, Z35 F.3d 1289, [9th Cir.], cert. denied, ___ US ___, 119 S.Ct. 365, 142 L.Ed.2d 301 ; Haynsworth v. The Corporation, 121 F.3d 956, 969 [5th Cir.l997], cert. denied, --- U.S. ----, 118 S.Ct. 1513, 140 L.Ed.2d 666 (1998); Allen v. Lloyd's of London, 94 F.3d 923, 929-30 [4th Cir. 1996]; Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1230- 31 [6th Cir.1995]; Bonny v. Society of Lloyd's, 3 F.3d 156, 160-62 [7th Cir.1993], cert. denied, 510 US 1113 ; Riley v. Kingsley Underwriting Agencies. Ltd., 969 F.2d 953, 958 [10th Cir.], cert. denied, 506 US 1021 ).
In each case, the court rejected the Names' assertion that enforcement of the clauses would violate United States public policy. Central to these decisions were the courts' conclusions that English law provided the Names with a suitable forum in which to bring their fraud claims and a sufficient remedy in the event that their claims were successful. For instance, in Allen, the court stated
We do not believe that enforcing the parties' forum selection and choice of law provisions in this case will subvert the United States securities laws' policy of prohibiting fraud. British law not only prohibits fraud and misrepresentations as do the United States securities laws, but also affords Names adequate remedies in the United Kingdom. Under British law, the Names could bring claims based on the tort of deceit, breach of contract, negligence, and breach of fiduciary duty, and could obtain injunctive, declaratory, rescissionary, and restitutionary relief.
(94 F.3d at 929) - Significantly, the court noted that the mere fact that an international transaction is subject to laws and remedies different or less favorable than those of the United
States is insufficient to deny enforcement of the transaction. (Id.) Thus, "To permit the Names to escape their agreements to be bound by the law and rules of the British market just at a time when they face losses would... violate the most fundamental precepts of international comity." (Id. at 930).
In Haynsworth, the court reached a similar conclusion, stating, "[w]e refuse to accept the notion.. that the sheer scope of U.S. securities law automatically renders that of other countries inferior or should provide American investors a means to escape their contractual obligations when they begin to prove too costly." (121 Fad at 969). "The view that every foreign forum's remedies must duplicate those available under American law would render all forum selection clauses worthless and would severely hinder Americans' ability to participate in international commerce." (Id.). The court went on to state that
Indeed, in some respects English law appears to provide even greater protections than does U.S. law. See Roby, 996 F.2d at 1365 (noting the "low scienter requirements" of English misrepresentation law). The plaintiffs' remedies in England are adequate to protect their interests and the policies behind the statutes at issue. Having previously enjoyed the benefits of Lloyd's contractual obligations to them, the plaintiffs must now live up to theirs as well.
(Id. at 969-70).
As noted above, the Graces themselves have previously challenged the validity of the forum selection and choice of law clauses. In 1996, the Graces commenced an action in the U.S. District Court for the Southern District of New York, asserting claims for violation of the New York State consumer protection laws, common law fraud, breach of fiduciary duty, and breach of the duty of utmost good faith. The district court dismissed the complaint on the grounds that the forum selection clause required the Grace's claims to be brought in England, under English law and the Graces had failed to demonstrate any reason why those clauses should not be enforced. (Grace v. Corporation of Lloyd's, 1997 WL 607543 (SDNY 1997).
In addition to commencing fraud suits, many Names found themselves unable or unwilling to satisfy their underwriting obligations and they began to incur debts to the Central Fund, which led to additional litigation between Lloyd's and the Names. (See, Allen v. Lloyd's of London, supra at 927). The end result of all these events was that the integrity and viability of the entire Lloyd's market was placed in jeopardy.
Lloyd's thereupon developed a massive restructuring and settlement plan in 1996 which it called the Plan for Reconstruction and Renewal ("R&R Plan"). The plan was designed to provide reinsurance to the over-taxed syndicates within the market and to resolve the increasing intra-market litigation which was hindering the market's ability to function.
The R&R Plan had two essential components. First, the intra-market litigation would be settled by having Lloyd's and all the Names who accepted the Plan grant each other mutual releases. (See, The Society of Lloyd's v. Ashenden, ___ F.Supp. ____, 1999 WL 284775 [N.D. Ill. 1999) at 5). In exchange, the settling Names would receive a total of approximately $4.8 billion in credits. (Allen v. Lloyd's of London, E at 927). The settling Names would also agree to pay all outstanding obligations for years of account after 1992. (E, The Society of Lloyd's v. Ashenden, supra at 5).
The second feature of the Plan was the reinsurance of the Names' pre-1993 underwriting obligations by a newly formed independent company called Equitas Reinsurance Ltd. Equitas was funded by several sources, including payments from the Central Fund and a premium payment assessed by Lloyd's on the Names. Each Name was sent a "finality statement" which set forth the amount of the premium they had to pay in order to receive reinsurance from Equitas. Lloyd's calculated this amount on the basis of the exposure of each Name's syndicates to pre-1992 risks. (See, The Society of Lloyd's v. Ashenden, supra at 6).
One of the main goals of the R&R Plan was to enable the Lloyd's market to function without being stalled by litigation. In order to accomplish this, the Plan included several key features which are germane to the instant action. First, paragraph 5.5 of Plan contained a so-called "pay now, sue later" clause which barred the Names from claiming any set-offs to the Equitas premium, including any claims for damages for fraud. (See Id at 7) - This clause stated, inter alia that:
Each Name shall be obliged to and shall pay his Name's Premium in all respects free and clear from any set-off, counterclaim or other deduction on any account whatsoever including in each case, without prejudice to the generality of the foregoing, in respect of any claim against ERL, the Substitute Agent, any Managing Agent, his Members' Agent, Lloyd's or any other person whatsoever...
This clause further contained a waiver of any stay of execution in connection with a judgment for the Equitas premium obligation.
Paragraph 5.10 of the Plan contained a so-called "conclusive evidence" clause, which provided that the Lloyd's calculation of the premium owed by the Name would constitute "conclusive evidence as between the Name and [Equitas) in the absence of manifest error." (See, AM- at 7). Finally, at the same time that the R&R Plan was adopted, Lloyd's enacted a bylaw which specifically authorized a substitute agent to enter into the Plan on the Names' behalf Thus, a Name could be bound by the Plan even if he or she originally rejected it: Lloyd's based its authority to enact this bylaw on a 1983 bylaw which empowered the Lloyd's Council to appoint substitute agents in general, and the 1982 Act which authorized the Council to "'make such bylaws as from time to time seem requisite or expedient' to further the
objects of the Society" (See, id. at 6-7)
According to Lloyd's, less than 5% of the Names rejected the R&R Plan and an even smaller number refused to make premium payments. However, a certain number of Names, including the Graces, did reject the plan and refused to make payments. Lloyd's responded by appointing a substitute agent to accept the plan on behalf of those Names. Thereafter, on November 18, 1996, Lloyd's commenced proceedings against the non-accepting Names, including the Graces, in the High Court of Justice, Queen's Bench Division, in London. These proceedings sought payment of each Name's respective Equitas premium plus unpaid interest thereon.
These proceedings essentially became test cases of each of the aforementioned clauses. The first case held that Lloyd's was authorized to create Equitas and to appoint substitute agents to bind non-settling Names to the reinsurance plan. This ruling was affirmed on appeal. (See, Id. at 7). The second case upheld the validity of the "pay now, sue later" clause. This ruling was also affirmed on appeal. (E, AM.). Finally, a third test case upheld the validity of the "conclusive evidence" clause. Leave to appeal this ruling was denied. See, id.).
Significantly, the English courts rendered the judgments in favor of Lloyd's despite their finding that the Names had put forth some evidence which supported the allegations that they had been fraudulently induced to participate in the Lloyd's market (see, e.g., The Society of Lloyd's v. Fraser & Ors, at 7 [Court of Appeal, July 31, 1998). In fact, the English courts assumed for the purpose of the proceedings that there were arguable allegations of fraud and misfeasance on Lloyd's part. (See, id. at 16). Despite this, the courts entered judgment in favor of Lloyd's on the grounds that, among other things, the pay now, sue later clause" was legitimately enacted and it prohibited the Names from relying on fraud as a defense or a set-off to Lloyd's claims, notwithstanding the possibility of such fraud. Thus, the Names were required to pursue any claims for fraud in a separate, later action.
As noted above, the English proceedings resulted in final judgment against Lorraine Grace and Oliver Grace, Jr. in the amounts of UK 206,685.37 and UK 269,293.70, respectively. Lloyd's now moves to enforce those judgments. The Graces oppose the motion on the grounds that: 1) the judgments were rendered in violation of the Graces' rights to due process; and 2) the judgments violate New York public policy.
Generally, a judgment: which is duly entered in a foreign country is enforceable in New York pursuant: to the Uniform Foreign Country Money Judgments Recognition Act (See, CPLR ¤¤ 5301-07).
 The provisions in the CPLR are based upon the Restatement of the Foreign Relations Law of the United States, 3d, ¤482. (See, Robinson v. Robinson, 120 AD2d 415).
Such a judgment is enforceable by motion for summary judgment in lieu of complaint, provided that the judgment: is final, conclusive and enforceable in the forum in which it was rendered. (E, CPLR ¤ 5302, 5303). As a general rule, New York courts will recognize foreign judgments under the doctrine of comity, provided those judgments are based upon recognized
principles of jurisdiction and due process. (Greschler v. Greschler , 51 NY2d 368; Robinson v. Robinson, 120 AD2d 415; Porsini v. Petricca, 90 AD2d 949; Wehbe v. Continental Insurance Co., 1995 WL 619936 [NY Sup. 1995, Cahn, J.]). This policy serves the purpose of protecting the interests of New York citizens in foreign countries by encouraging reciprocal
accommodation in enforcing judgments. (Wehbe v. Continental Insurance Co., supra at: 3). "Accordingly, one who has appeared in a foreign action is ordinarily precluded from attacking the foreign judgment through the commencement of a collateral action in New York, unless a showing is made that the judgment may not or should not be recognized pursuant to the provisions of CPLR ¤ 5304." (Id.).
The Graces argue that the judgments entered against: them in England are not enforceable in New York because the English judicial system did not follow procedures which are compatible with due process of law, CPLR 5304 (a) (1). specifically, the Graces argue that they were deprived of due process because they were not afforded a hearing on the merits of their fraud claims prior to the entry of the judgments against them. (See U.S. v. James Daniel Good Realty, 510 U.S. 43 ; Mathews v. Eldridge, 424 US 319 (1976)) They also claim that they were denied due process because, based on the "conclusive evidence" clause, they were denied the opportunity to challenge the amounts sought from them by Lloyd's which formed the basis for the ultimate judgments against them.
In support of their argument, the Graces rely on U.S. v. James Daniel Good Realty, supra and Mathews v. Eldridge, supra, which hold that, absent extraordinary circumstances, due process requires that property may not be seized without prior notice and a meaningful opportunity to be heard. (See, 510 US at 53; 424 US at: 335). In determining whether due process has been satisfied, the court must consider: 1) the private interest affected by the official action; 2) the risk of an erroneous deprivation of that interest through the procedures used, as well as the probable value of additional safeguards; and 3) the government's interest in seizing the property, including the administrative burden that additional procedural requirements would impose. (U.S. v. James Daniel Good Realty, 510 U.S. 43, 53; Mathews v. Eldridge, 424 US 319, 335; see, Mental Hygiene Legal Service ex rel. Aliza K. v. Ford, 92 NY2d 500). [In the case of a dispute between private parties rather than between an individual and the government, the court must consider the interest of the party seeking the prejudgment remedy, with 'due regard for any ancillary interest the government may have in providing the procedure or forgoing the added burden of providing greater protections.'" (Tri-State Development. Ltd. v. Johnson, 160 F.3d 528, 531 [9th Cir. 1998], quoting, Connecticut v. Doehr, 501 US 1, 11 
The Graces assert that their private interest is readily apparent, i.e the amount of the judgments against them. They further assert that because it is a "virtual certainty" that they were defrauded by Lloyd's, the risk of erroneous deprivation of this interest is enormous. Finally, they argue that there is no reason here for them to be deprived of the opportunity to challenge the amount of the judgments before having to pay them. They assert that there is no longer any need to make Names pay now and sue later in order to protect policyholders because Equitas became fully funded when Lloyd's paid it the premiums of all the non-settling Names and received an assignment of the claims against those Names. Therefore, any exigent circumstances which might have once existed, e.g. the need to fund Equitas so that reinsurance would be immediately available, no longer exists, and the money paid by the Graces would go to Lloyd's, not to policyholders with claims.
The same arguments were recently considered in another action commenced by Lloyd's to enforce judgments against non-settling American Names. In The Society of Lloyd's v. Ashenden, ___ F.Supp. ____, 1999 WL 284775 [ND. Ill. 1999), Lloyd's brought an action in the district court for the Northern District of Illinois against certain Names, seeking recognition of the English judgments, based on the Illinois Uniform Foreign Judgments Recognition Act, 735 ILCS 5/12-618, et seq.
In Society of Lloyd's v. Ashenden, the defendant Names had rejected the R&R Plan and had instructed their Members' Agent not to execute it on their behalf, In the meantime, Lloyd's paid the insurance premium on the Names' behalf and received an assignment from Eguitas of its claims against the non-paying defendant Names. Lloyd's then obtained judgments against the Names in England and commenced the federal court action in Illinois, seeking to enforce those judgments.
The Names opposed the action on the grounds that: 1) "the judgment were rendered under a court system that allowed procedures incompatible with our requirements of due process"; and 2) "the contractual provisions on which the judgments are based is repugnant to the public policy of Illinois." (Society of Lloyd's V. Ashenden, supra at 11).
The district court granted Lloyd's motion for summary judgment. First, the court noted that, indeed, it appeared that the judgments had been obtained without the Names being permitted to seriously challenge Lloyd's claims. (Id. at 15). This had occurred because, based on the "pay now, sue later" clause and the "conclusive evidence" clause, the Names were not permitted to pursue their claims for a set-off based on their claims of fraud, and they were not allowed to contest the amount of the premiums set. (Id.). The court concluded, however, that based on the factors set forth in U.S v. James Daniel Good Realty, supra and Mathews v. Eldridge supra, the Names due process rights were not violated merely because they had to delay their claims against Lloyd's.
In its analysis, the court noted that the private interest at risk in the English procedure would be the Names' "right to a judgment based on an accurate claim by Lloyd's and their right to offset from the judgment any damage done to them as a result of fraud." (Society of Lloyd's v. Ashenden, supra at 17). Moreover, the risk of erroneous deprivation "is of course the chance that the [Names will be faced with a judgment in excess of what they rightfully owe, considering the accuracy of the claim against them and the amount of set-off they may be entitled to." (Id.).
The court noted that "[d]enial of a pre-deprivation hearing or remedy does not automatically render procedures violative of the due process clause if there is a provision for an effective post-deprivation remedy and there is good cause to put off the hearing." (Id. at 15, citing Bowles v. Willingham 321 US 503, 519; Phillips v. Commissioner, 283 US 589). "Since the court procedures to determine the amount actually owed and the setoff are essentially the same, whether in the collection suit or later in a separate suit, there would be no greater risk to an ultimately correct resolution of the Names' rights vis a vis Lloyd's, if they are required to wait to resolve these rights in a post-deprivation lawsuit." (Society of Lloyd's v. Ashenden, supra at 15). Although the Names might have to pay Lloyd's the entire amount claimed before their own claims were adjudicated, such a delay was warranted based on the necessity of allowing Lloyd's to implement the R&R Plan without having to litigate the amount of each Name's payment and their fraud claims. (Id. at 18) The court specifically noted the importance of the Lloyd's market to the British economy as well the need to protect Lloyd's insureds and the Names themselves by making sure that reinsurance protection was available. (14. at 18-19). Finally, the court rejected the Names' argument that the appointment of a substitute agent violated Illinois public policy. (14. at 22).
The Names subsequently moved the district court to alter or amend the judgment. However, that motion was denied. In that ruling, the court reiterated its finding that the Names, through their membership in Lloyd's, had agreed to be bound by the laws and by-laws which governed it, which laws and by-laws included the creation of the R&R Plan and which provided for substituted consent by a substitute agent. (Society of Lloyd's v. Ashenden, 98 C 5335 [N.D. Ill., 8/18/99 at 2). Thus, the Names had received all the process that was due to them by being permitted to participate in the English actions to determine whether Lloyd's actions comported with English contractual and statutory law. (14.). In its ruling, the court specifically rejected the Names' argument that exigent circumstances no longer existed because Equitas was fully funded. (14. at 3). The court noted that Lloyd's was "saved" only because most Names were willing to accept the R&R Plan and delay the litigation of their claims against Lloyd's. (Id.). "It would not be appropriate to change the rules in mid-stream, allowing the Ashendens and others who were placed into the plan through the actions of the substitute agent, to get relief through litigation and delay, while others who were more agreeable forewent such actions." (Id.)
For reasons that the court in Society of Lloyd's v. Ashenden, supra, found that the Ashendens were not deprived of their due process rights by having judgment entered against them before they had the opportunity to litigate their fraud claims and to challenge the amounts of the judgments, this court arrives at a similar decision in this case. The defendants herein have not been denied of their due process rights, even though they may well eventually be able to prove their fraud claims.
First, it is undisputed here that the Graces were notified of the English proceedings commenced by Lloyd's and that the Graces participated in those proceedings before judgment was entered against them. Therefore, the court is not persuaded by the Graces' argument that the pay now, sue later" and "conclusive evidence" clauses are the functional equivalent of a cognovit, pursuant to which an obligor consents in advance to a creditor's obtaining a judgment without notice to the obligor or a hearing. (See, Fiore v. Oakwood Plaza, 78 NY2d 572, 578, cert. denied, 506 US 823 [1992)). The Graces participated in a hearing in England which resulted in the entry of judgment against them and in the postponement of their challenges to the amount of the judgment. Thus, they were not deprived of notice and an opportunity to be heard.
The gravamen of the Graces' argument is that they are being required to pay the judgment prior to litigating their challenges to that judgment in a subsequent action. Unquestionably, the Graces have an interest at risk here, i.e. their rights to a proper judgment and to offset from the judgment any damage sustained by them as the result of fraudulent conduct: by Lloyd's. (See, Society of Lloyd's v. Ashenden, supra at 17). However, the Graces knowingly and willingly agreed, in the General Undertaking, to litigate their claims against Lloyd's in the English courts, under English law. Now, the English courts have determined that the "pay now, sue later" and "conclusive evidence" clauses were validly enacted by Lloyd's and that those clauses bar the Names from litigating their claims against Lloyd's before paying their Equitas premium. While this is not a procedure which the Graces, or any similarly situated Name, is likely to prefer, it is one which Lloyd's had a valid reason for enacting and the English courts had a sufficient reason to uphold, i.e. to ensure that the R&R Plan would be immediately implemented, so that Lloyd's could continue to function.
Although Lloyd's is not a governmental entity, there is no question that it is a vital part of the British economy and the British government has taken steps, via the various Lloyd's Acts, to ensure the continuing viability of the Lloyd's market.
Most importantly, the Names still have viable remedies in the English courts. The courts of this country have repeatedly held that English law is adequate to discourage fraud and misrepresentation, and the English courts can provide the Names with a sufficient remedy should a fraud be proven. (See, e.g. Stamm v. Barclays Bank of New York, supra; Roby v. Corporation of Lloyds's, supra; Haynsworth v. The Corporation, supra; Allen v. Lloyd's of London, supra; Shell v. R.W. Sturge. Ltd., supra; Bonny v. Society of Lloyd's, supra). English law provides causes of action against both the Member and Managing Agents for, among other things, fraud, breach of fiduciary duty, and negligent misrepresentation. (See, Richards v. Lloyd's of London, supra at 1296) Also, some English courts have already awarded substantial judgments to other Names. (Id, citing Arubuthnott v. Fagan and Feltrim Underwriting Agencies Ltd., 3 Re LR 145 (H.L.1994); Deeny V Gooda Walker Ltd., Queen's Bench Division [Commercial Court], The Times 7 October 1994).
The argument has been made that enforcement of the English judgments would violate the public policies of the United States, and New York in particular, of protecting citizens against fraud in the sale of securities. The Graces argue that recognition of the judgments would violate these policies because the Graces were fraudulently induced to invest in the Lloyd's market and they have no adequate means by which to pursue their fraud claims in England. At oral argument, the New York State Attorney General's office also asserted that New York State public policy would be violated by allowing the English judgments to be enforced in New York before the Graces, or any other New York Names, are permitted to litigate their fraud claims in England.
"While it is generally the rule in this State that where the basic public policy of the forum would be offended a court can refuse to recognize the validity of a foreign judgment, the public policy exception to the doctrine of comity is usually invoked only in the rare instance 'where the original claim is repugnant. to fundamental notions of what is decent and just in the State where enforcement is sought." (Greschler V. Greschler, 51 NY2d 368, 377), Thus, for the court to refuse full recognition to a lawful foreign judgment, it must be demonstrated that the decree violates 'some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.'" (Greschler v. Greschler, supra, quoting, Loucks v. Standard Oil Co., 224 NY 99, 111). Thus, "[i]t follows that foreign judgments generally should be upheld unless enforcement would result in the recognition of a 'transaction which is inherently vicious, wicked or immoral, and shocking to the prevailing moral sense.'" (Greschler v. Greschler supra quoting, Intercontinental Hotels Corp. V. Golden, 15 NY2d 9, 13).
In the instant action, the Graces have not demonstrated that the enforcement of the English judgments will violate any public policy of either this state or of the united States generally. The court does not doubt that it would be preferable or the Graces, or any other Names, in the first instance, to litigate their fraud claims, and to challenge the method by which Lloyd's calculated the amounts owed by each Name under the R&R Plan, since this would allow them to reduce or perhaps even eliminate the amount of money they would otherwise have to pay to Lloyd's. However, the fact that this method is preferable does not mean that a different method is violative of public policy.
The Graces knowingly and willingly entered into the General Undertaking, which required them to litigate their claims in England, pursuant to English law. The validity of the forum selection and choice of law clauses has repeatedly been upheld in the courts of this country, which have found that they did not violate United States policy of protecting citizens against fraud. The English courts have now concluded that, based on the pay now, sue later" and "conclusive evidence" clauses, the Names must wait to pursue their claims against Lloyd's. Clearly, this decision was based, at least in part, on the legitimate need to allow the Lloyd's market, which is a vital part of the British economy, to continue to function. However, the Graces will still have an opportunity to pursue their claims against Lloyd's at a later date. Therefore, the court cannot find that the Graces have been denied due process in violation of New York's public policy. Moreover, the Graces have not demonstrated any other basis on which this court could find that the decisions of the English courts violate the public policy of New York.
The Graces have also failed to demonstrate that they will not have an adequate remedy in England should they be able to prove their fraud allegations. English law remains adequate to discourage fraud and misrepresentation, and the English courts can provide the Graces with a sufficient remedy should a fraud be proven. (See Stamm v. Barclays Bank of New York, supra; Roby v. Corporation of Lloyds's, supra; Haynsworth v. The Corporation, supra; Allen v. Lloyd's of London, E; Shell v. R.W. Sturge Ltd., supra; Bonny v. Society of Lloyd's, supra). Therefore, it cannot be said that the Graces will be deprived of a forum in which to pursue their claims, in violation of New York public policy.
Finally, the court notes the Graces' objection to the procedure by which a substitute agent was able to bind the non-settling Names to the R&R Plan. However, it is undisputed
here that such a mechanism has been upheld under English law, a law by which the Graces willingly agreed to be bound. Moreover, the Graces have not been deprived of an opportunity to challenge that finding or to ultimately present their claims in the English courts. Therefore, this court cannot say that the English courts' decision to uphold the substituted agent bylaw was inherently vicious, wicked or immoral, or shocking to the prevailing moral sense. (Greschler v. Greschler, supra, quoting, Intercontinental Hotels Corp. v. Golden, 15 NY2d 9, 13). Accordingly, it is
ORDERED that plaintiff's motion for summary judgment is granted and the Clerk is directed to enter judgment in favor of plaintiff and against defendants Lorraine Graves Grace and Oliver R. Grace in the amount sought in the complaint, together with interest as prayed for allowable by law until the date of entry of judgment, as calculated by the Clerk, and thereafter at the statutory rate, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs.
DATED: November 1999