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ROBY v. CORPORATION OF LLOYD'S

August 18, 1992

JOHN S. ROBY, et al., Plaintiffs, against THE CORPORATION OF LLOYD'S a/k/a THE SOCIETY AND COUNCIL OF LLOYD'S d/b/a LLOYD'S OF LONDON, et al., Defendants.

Lasker


The opinion of the court was delivered by: MORRIS E. LASKER

These motions to dismiss the complaint present a knot of venue and arbitration clause questions.

 Plaintiffs are American investors who joined insurance syndicates that underwrote policies issued in England through Lloyd's of London. They now allege violations of American securities laws and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c) and (d) (1988 & Supp. 1989), by various persons and entities in connection with their decision to join Lloyd's syndicates. Three motions to dismiss have been brought by various defendants, *fn1" who assert that this court is an impermissible venue for the suit because plaintiffs entered contracts with the defendants that provide for dispute resolution by arbitration in England and/or the English courts. Defendants argue in the alternative that under the doctrine of forum non conveniens the suit must proceed in England even if the arbitration and forum selection clauses do not control.

 Defendants' motions are granted.

 BACKGROUND

 Lloyd's provides a marketplace and rules pursuant to which individual underwriters such as plaintiffs (known as "Names" or "Members") form insurance syndicates, with each Name subscribing to a certain percentage of the risk on policies issued by the syndicates, in return for a certain percentage of premiums paid by the insured. To become Members of Lloyd's (synonymous with "Names"), investors must meet in London with representatives of Lloyd's, and must sign a "General Undertaking" in which they agree to be bound by English law and to have English courts or English arbitration govern all disputes relating to the Names' membership or underwriting activities at Lloyd's. The Names play no active role in the syndicates' operations. Each syndicate is run by a Managing Agent, with a Members' Agent retained by each Name to represent him or her in dealings with Lloyd's overall and with the syndicates' Managing Agents. Names are exposed to unlimited personal liability for their pro rata share of the obligations of the underwriting syndicates to which they belong, but have no liability for the obligations of their fellow Names.

 Plaintiffs are American citizens and are Names who claim to have incurred severe losses on their Lloyd's underwriting. They allege that Lloyd's and their Managing and Members' Agents solicited their investment in syndicates with false representations downplaying the risks and exaggerating the benefits associated with such investments. These actions, according to plaintiffs, violated American securities laws and RICO. They do not allege that the arbitration and forum selection clauses at issue here were fraudulently induced.

 The complicated structure of Lloyd's leads to a number of contractual relationships that pertain to the instant motion, all of which have in common that the parties to each agreement submit to arbitration in England and/or the jurisdiction of English courts over all disputes. The General Undertaking by which investors become Names provides, in relevant part:

 2.1 The rights and obligations of the parties arising out of or relating to the Member's membership of, and/or underwriting of insurance business at, Lloyd's and any other matter referred to in this Undertaking shall be governed by and construed in accordance with the laws of England.

 2.2 Each party hereto irrevocably agrees that the courts of England shall have exclusive jurisdiction to settle any dispute and/or controversy of whatsoever nature arising out of or relating to the Member's membership of, and/or underwriting of insurance business at, Lloyd's and that accordingly any suit . . . arising out of or relating to such matters shall be brought in such courts . . . . *fn2"

 Since 1990, when Lloyd's revised the standard agreements between Names and Members' and Managing Agents, each Name also has entered into a "Members' Agent's Agreement" which sets forth the terms of the relationship between Names and Members' Agents. That agreement provides:

 16.1 . . . Any dispute, difference, question or claim relating to this Agreement which may arise between the Agent and the Name shall be referred at the request of either party to arbitration in London. . . .

 19.2 Each of the parties hereby irrevocably submits for all purposes of and in connection with this Agreement to the exclusive jurisdiction of the courts of England. *fn3"

 Since 1990, the Managing Agents' rights and obligations have been defined by two agreements, known as the Agents Agreement and the Managing Agent's Agreement. The Agents' Agreement is between a Members' Agent and a Managing Agent, and contains standard provisions including:

 9.1 Any dispute, difference, question or claim relating to this Agreement which may arise between the Members' Agent and the Managing Agent shall be referred at the request of either party to arbitration in London. . . .

 11.2 Each of the parties hereby irrevocably submits for all purposes of and in connection with this Agreement to the exclusive jurisdiction of the courts of England. *fn4"

 The Managing Agent's Agreement defines the relationship of a Name and a Managing Agent, although plaintiffs dispute whether any of them in fact are bound by such an agreement. The Managing Agent's Agreement defines the relationship of the Name and the Managing Agent, and provides:

 16.1 . . . Any dispute, difference, question or claim relating to this Agreement which may arise between the Agent and the Name shall be referred at the request of either party to arbitration in London . . . .

 19.2 Each of the parties hereby irrevocably submits for all purposes of and in connection with this Agreement to the exclusive jurisdiction of the courts of England. *fn5"

 Before 1990, the Names' relationship with Members' and Managing Agents was defined by different contracts. The pre-1990 Members' Agent's Agreement contained a forum selection clause stating that any dispute "relating to this Agreement" would be subject to arbitration in England, while the Managing Agents were party to a Syndicate and Arbitration Agreement which provided for arbitration in London of all disputes "in connection with or in relation to the . . . Syndicate . . . or to its constitution or business."

 Defendants move for dismissal based on these agreements, as well as on forum non conveniens grounds. Despite plaintiffs' energetic opposition, the motions are granted.

 DISCUSSION

 Plaintiffs offer a variety of arguments against enforcing the arbitration and forum selection clauses, among them that the clauses do not cover the subject matter of plaintiffs' claims; that they do not cover all defendants; and that for reasons of public policy or judicial discretion, the clauses should not be enforced even if this dispute falls within their scope.

 The Court of Appeals for the Tenth Circuit recently ruled that the exact forum selection and arbitration clauses in question here were enforceable, and affirmed the dismissal of securities fraud claims brought against Lloyd's and Managing and Members' Agents by an American Name. Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir. 1992). *fn6" That well-reasoned opinion sets forth essentially the considerations that warrant dismissal of this complaint. Moreover, in a briefer treatment, the District Court for the Northern District of Illinois dismissed a similar suit. See Bonny v. Society of Lloyd's, 1992 U.S. Dist. LEXIS 15941, No. 91 C 5525, slip op. (N.D. Ill. May 29, 1992). Nevertheless, because the plaintiffs in this case have raised arguments not treated in these rulings and because suits like these remain fairly novel, it is useful to consider the issues at length.

 Four Supreme Court opinions of the last twenty years have addressed forum selection and/or arbitration clauses, and consistently have viewed such clauses favorably, particularly in cases involving international commerce. See Carnival Cruise Lines, Inc. v. Shute, U.S. , 111 S. Ct. 1522 (1991); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, 41 L. Ed. 2d 270, 94 S. Ct. 2449 (1974); The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972). The Court has noted that such agreements provide "the orderliness and predictability essential to any international business transaction", and that "[a] parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and destructive jockeying by the parties to secure tactical litigation advantages." Scherk, 417 U.S. at 516-517.

 Accordingly, forum selection clauses are to be enforced unless the party opposing enforcement "could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud and overreaching." The Bremen, 407 U.S. at 15 (1972) (enforcing forum selection clause conferring jurisdiction on English courts, although the American plaintiffs' claim likely was barred by a waiver they had signed that was enforceable under English law but not under American law). See also Seward v. Devine, 888 F.2d 957, 962 (2d Cir. 1989) (enforcing forum selection clauses where "no indication that enforcement of the clauses would be unreasonable or unjust"). Although The Bremen stressed the likelihood that the forum selection clause was actively negotiated by the parties, see 407 U.S. at 13, later cases have enforced forum selection clauses even in form contracts where the forum provision was not negotiated. See Carnival Cruise Lines, 111 S. Ct. at 1527.

 Arbitration agreements are governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and by the Convention of the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, TIAS 6997, 330 U.N.T.S. 38 (1970) ...


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