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ODYSSEY RE

February 25, 2000

ODYSSEY RE (LONDON) LIMITED, PLAINTIFF,
V.
STIRLING COOKE BROWN HOLDINGS LIMITED, STIRLING COOKE BROWN INSURANCE BROKERS LIMITED, STIRLING COOKE BROWN REINSURANCE BROKERS LIMITED, STIRLING COOKE BROWN NORTH AMERICAN HOLDINGS LIMITED, STIRLING COOK BROWN NORTH AMERICAN REINSURANCE INTERMEDIARIES INC., NICHOLAS BROWN, RAYDON UNDERWRITING MANAGEMENT COMPANY LIMITED, JEH RE UNDERWRITING MANAGEMENT (BERMUDA) LIMITED, REGINALD BILLYARD, WEB MANAGEMENT LLC, EURO INTERNATIONAL UNDERWRITERS LIMITED, JOHN HUBERT WHITCOMBE, AND CHRISTOPHER R. HENTON, DEFENDANTS.



The opinion of the court was delivered by: Buchwald, District Judge.

      OPINION AND ORDER

The plaintiff, Odyssey Re (London) Limited ("Odyssey"), a London-based corporation engaged in the business of insurance and reinsurance, brought this action against the defendants, a group of British and Bermudan insurance and reinsurance companies, their subsidiaries, and a number of individual principals of those companies. Odyssey asserts three counts against the each of the various defendants: (1) common law fraud; (2) violation of the Racketeer Influenced & Corrupt Organizations Act ("RICO" or the "Act"), 18 U.S.C. § 1962(c); and (3) violation of RICO's conspiracy provision, 18 U.S.C. § 1962(d). In brief, plaintiff alleges that the defendants engaged in an international conspiracy to fraudulently induce Odyssey to reinsure drastically unprofitable worker's compensation policies. Currently pending are several motions to dismiss this action based on various grounds.

A brief description of the named defendants in this case is necessary to begin this opinion.*fn1 The first group of defendants are Euro International Underwriters Limited ("Euro"), John Hubert Whitcombe ("Whitcombe"), and Christopher R. Henton ("Henton"), collectively the "Euro defendants." According to plaintiff's Amended Complaint,*fn2 Euro is "a corporation that Whitcombe and Henton began operating under English law in February 1997, and maintains its principal place of business [in] London, England." Comp. ¶ 17. Both Henton and Whitcombe, the Amended Complaint alleges, reside in Essex, England and are "citizen[s]" (or, more accurately, subjects) "of the United Kingdom." Id. ¶¶ 18-19. Whitcombe "approached Odyssey through Horace Holman International ("Holman"), a London broker, and requested Odyssey to extend [b]inding [a]uthority to him" to enter into reinsurance contracts on Odyssey's behalf. Id. ¶ 37. Whitcombe and Henton presented Odyssey with a "Background Report," a "Business Plan," and various other representations to entice Odyssey into conferring Whitcombe and Henton with the binding authority. Id. ¶¶ 38-43. Accepting the allegations of the Amended Complaint as true, Whitcombe and Henton apparently started Euro as a vehicle to solicit reinsurance on behalf of Odyssey.

The second group of defendants are Stirling Cooke Brown Holdings Limited ("SCB Holdings"), Stirling Cooke Brown Insurance Brokers Limited, Stirling Cooke Brown Reinsurance Brokers Limited, Stirling Cooke Brown North American Holdings Limited, Stirling Cooke Brown North American Reinsurance Intermediaries, Inc., and Raydon Underwriting Management Company Limited, collectively the "SCB Defendants." SCB Holdings, the parent company, is a Bermudan company whose securities are traded publicly in the United States on the NASDAQ exchange market. Comp. ¶ 8. The other SCB defendants are some of SCB Holdings' subsidiaries throughout Britain, Bermuda, and the United States, all engaged in the business of selling insurance and reinsurance. Id. ¶¶ 9-11, 13. Additionally, the Amended Complaint names as a defendant Nicholas Brown, the "principal shareholder and controlling person of SCB Holdings" who "resides in England and Bermuda." Id. ¶ 12. According to the Amended Complaint, the SCB defendants agreed to "direct substantial volumes of [worker's compensation reinsurance] business" to the Euro defendants. Id. ¶ 37. Plaintiff alleges that this business took the form of "guaranteed loss contracts" that the Euro defendants would in turn pass on to Odyssey through the mechanism of the binding authority. Id. ¶ 36.

The third group of defendants is JEH Re Underwriting Management (Bermuda) Limited ("JEH") and its principal, Reginald Billyard ("Billyard"), collectively the "JEH defendants." Billyard is a resident of Bermuda and JEH maintains its offices there. Comp. ¶¶ 14-15. The Amended Complaint alleges that Billyard, a long-time business associate of SCB Holdings' Brown, served as "managing general underwriter" for John Hancock Mutual Life Insurance Company of America ("John Hancock"), and agreed to pass on John Hancock's worker's compensation liability, ultimately to Odyssey through the SCB defendants and Euro's binding authority. Id. ¶¶ 23-27.

Defendant's have moved to dismiss as follows: the Euro defendants, SCB Holdings, Raydon, and the JEH defendants based on the ground of lack of personal jurisdiction (Fed.R.Civ.P.12(b)(2)); the Euro defendants, SCB Holdings, and Raydon based on insufficient service of process (Fed.R.Civ.P.12(b)(5)); and all defendants based on the grounds of lack of subject matter jurisdiction (Fed.R.Civ. P. 12(b)(1)) and insufficient pleading of the RICO and fraud counts (both Fed.R.Civ.P. 9(b) and 12(b)(6)). Additionally, the Euro and SCB defendants have moved to dismiss based on the doctrine of forum non conveniens.*fn3 Defendant Nicholas Brown has not responded to plaintiff's Amended Complaint in any way.*fn4 Plaintiff, of course, disputes each of these grounds.*fn5

Background

Reinsurance is a contractual arrangement whereby one insurer (the "ceding insurer" or "reinsured") transfers, or "cedes" all or part of the risk it underwrites pursuant to a policy or group of policies to another insurer. See Colonial American Life Insurance Co. v. Commissioner, 491 U.S. 244, 246-248, 109 S.Ct. 2408, 105 L.Ed.2d 199 (1989); Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049, 1053 (2d Cir. 1993). "The purpose of reinsurance is to diversify the risk of loss . . . and to reduce required capital reserves. Spreading the risk prevents a catastrophic loss from falling upon one insurer." Unigard Security, 4 F.3d at 1053 (internal citations omitted). "Reinsurance is simply an insurance policy issued to an insurer." Employers Insurance of Wausau v. American Centennial Insurance Co., No. 86 Civ. 8576, 1989 WL 6631, at *1 (S.D.N.Y. Jan. 24, 1989). "Pursuant to the reinsurance contract, the reinsurer agrees to indemnify the ceding insurer in return for a portion of the premium on the risk transferred." Barry R. Ostrager and Thomas R. Newman, Handbook on Insurance Coverage Disputes, § 13.01[a] (1990) (citing, inter alia, Transcontinental Underwriters Agency, S.R.L. v. American Agency Underwriters, 680 F.2d 298, 299 n. 2 (3d Cir. 1982); Delta Holdings, Inc. v. National Distillers and Chemical Corp., No. 85 Civ. 3439, 1988 WL 36330, at *1-3 (S.D.N.Y. Apr.11, 1988)).

According to the Amended Complaint, "[i]n or about mid-1996, Whitcombe and Henton [the principal Euro defendants] agreed with Brown and the "Stirling Cooke entities"*fn6 that if Whitcombe and Henton would identify and secure [binding] authority to act on behalf of a financially sound, U.S. qualified [target] reinsurer,*fn7 the [other defendants] would direct substantial volumes of business to Whitcombe and Henton, from which they would derive tremendous personal income." Comp. ¶ 37.

The plan worked as follows: First, the managing general underwriters ("MGU's") who were part of the enterprise (JEH, Web, and several of the SCB subsidiaries) would seek out and reinsure "materially under priced reinsurance" from U.S. workers' compensation insurers. Id. ¶ 35. Then, Whitcombe and Henton would "retrocede," or pass that liability from the MGU's to the unknowing target reinsurer through the binding authority in such a way that "was structured to guarantee the purchaser [and the underwriter] a profit." Id. Finally, the target reinsurer would be left beholden to the original insurer for a "guaranteed loss contract" for which "massive losses are inevitable." Id. ¶ 36. It was key to the plan that the deals be structured in such a way that "created the illusion of profitability," "delayed the inevitable presentation of these vast losses to the true risk bearers," and "provided a further source for generation of risk-free income for the defendants." Id.

Plaintiff alleges that in mid-1996, Whitcombe approached Odyssey in England, through Holman, a London-based intermediary, to convince Odyssey to extend it binding authority. Id. ¶ 37. Later that fall, Whitcombe and Henton presented Odyssey with a "Background Report," allegedly prepared with the assistance of other unspecified defendants, setting out the scope of the account they proposed to create for Odyssey though Holman in London. Id. ¶ 38. Whitcombe and Henton followed up with a "Business Plan," on November 1, 1996 which "confirme[ed] and reiterat[ed] the earlier representations," id. ¶ 39, as well as "further discussions" in which they made various other representations designed to entice Odyssey into signing off on the binding authority. Id. ¶¶ 40-43.

On January 27, 1997, Odyssey signed Whitcombe's proposed binding authority. Id. ¶ 43.*fn8 Whitcombe and Henton then formed Euro in February of 1997. Id. ¶ 17. Odyssey alleges that, with the binding authority in hand, the Euro defendants committed Odyssey to a series of disastrously unprofitable, but deceptively structured reinsurance contracts. Odyssey further alleges that the Euro defendants induced it on February 11, 1998, to extend the binding authority to June 30, 1999, by masking the nature of the agreements entered into under the binding authority. Id. ¶¶ 56-59.

Plaintiff, which was subsequently acquired by a new parent company, filed this suit on March 29, 1999. In late April and early May of 1999, defendants offered an initial set of motions to dismiss plaintiff's complaint, which were fully briefed and set down for oral argument before Judge Lewis A. Kaplan of this Court on June 28, 1999.*fn9 At that hearing, Judge Kaplan preemptively offered plaintiff the opportunity to replead the complaint in response to the deficiencies pointed out by defendants in their briefs and during argument. He specifically warned plaintiff that "having given [Odyssey the] opportunity [to replead] now," he was "not so sure [he] would give it to [Odyssey] again."*fn10 Tr. 59.*fn11 By letter, plaintiff accepted Judge Kaplan's offer and filed the Amended Complaint on August 16, 1999. Defendants filed the instant renewed round of motions to dismiss in late September and early October of 1999.

Discussion

In most cases, the correct sequence in analysis commences with jurisdiction, proceeds to forum non conveniens, and finally to the underlying substantive issues. See, e.g., Syndicate 420 at Lloyd's London v. Early American Insurance Co., 796 F.2d 821, 826-27 n. 8 (5th Cir. 1986) ("This is so because forum non conveniens is a doctrine which permits a court to decline to exercise jurisdiction already vested."). This case differs from garden-variety forum non conveniens analysis, though, in that there are defendants who challenge the exercise of jurisdiction in this forum and another who contests its exercise in the proposed alternative forum. Web, an American company, contests the exercise of jurisdiction in Britain, while seven defendants challenge its exercise here.*fn12

For the reasons stated below, the motion of Web to dismiss plaintiff's charges against it is granted outright, and the motions of the SCB and Euro defendants to dismiss the remainder of the complaint on the grounds of forum non conveniens are granted on the conditions set forth.

A. Web's Motion to Dismiss

Web brought its motion to dismiss all three counts of Odyssey's Amended Complaint: common law fraud, RICO's § 1962(c) substantive provision, and the Act's § 1962(d) conspiracy provision. It should be remembered that Web is American company who served as managing general underwriter to United States-based insurance companies to reinsure policies that ultimately ended up being reinsured by other international defendants and, eventually, the plaintiff. The thrust of Web's argument is that Odyssey has failed to state a claim for which relief may be granted under Federal Rule of Civil Procedure 12(b)(6) and failed to plead with particularity under Rule 9(b).*fn14 We will address each of plaintiff's claims against Web in turn.*fn15

1. Common Law Fraud

It is basic to the Court's analysis of common law fraud to determine first what state or nation's law should be applied.*fn16 Initially, this Court would apply New York's conflict of law rules to the substance of the non-RICO common law fraud claim. PT United Can Co. v. Crown Cork & Seal Co., No. 96 Civ. 3669, 1997 WL 31194, at *9 (S.D.N.Y. Jan.28, 1997) (citing Colgate Palmolive Co. v. S/S Dart Canada, 724 F.2d 313, 316 (2d Cir. 1983)) aff'd, 138 F.3d 65 (2d Cir. 1998). Under New York conflicts of law principles, fraud claims are governed by the state in which the injury is deemed to have occurred, "which is usually where the plaintiff is located." Telecom International America, Ltd. v. AT & T Corp., 67 F. Supp.2d 189, 207 n. 16 (S.D.N.Y. 1999) (quoting Pinnacle Oil Co. v. Triumph Oklahoma, L.P., No. 93 Civ. 3434, 1997 WL 362224, at *2 (S.D.N.Y. June 27, 1997)). Accord Robinson v. Avis Rent-A-Car, Inc., No. 98 Civ. 4321, 1999 WL 342037, at *3 (E.D.N.Y. May 24, 1999); Trionic Associates, Inc. v. Harris Corp., 27 F. Supp.2d 175, 182 n. 7 (E.D.N.Y. 1998). Here, the alleged injury is to Odyssey, which is located in England. As such, British law should govern the substance of plaintiff's common law fraud claim.

However, although British law must govern the overall structure of Odyssey's fraud claim, we must undertake an additional analysis to determine what law governs the specific issue of the nature of the duty Web may have owed to Odyssey. See Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 785-86 (2d Cir. 1999) (remanding fraud case back to district court because it had not addressed question of whether New York or Puerto Rico law applied to the fiduciary duty/duty to disclose at issue). This determination is particularly important because American attitudes toward the duties owed by parties to a reinsurance arrangement may differ from those under British law. See American Special Risk Insurance Co. v. Greyhound Dial Corp., No. 90 Civ. 2066, 1996 WL 551659, at *85 (S.D.N.Y. Sept. 26, 1996) (noting the difference between "United States law" and "English law" on the question of duties owed between a reinsured and a reinsurer).*fn17

In Aaron Ferer & Sons, Ltd. v. Chase Manhattan Bank, National Association, 731 F.2d 112, 120-21 (2d Cir. 1984), the Second Circuit analyzed whether a breach of fiduciary duty claim would be governed by British, Chilean, New York or Nebraska law. Even though the plaintiff in that case was English, the Court concluded that New York law should apply to the breach of duty claim because all of the acts complained of took place in New York and New York has a substantial interest in preventing torts by banks operating within its jurisdiction. Id. Here, Web is a Connecticut corporation doing business in the American reinsurance industry. As a general proposition, the duties owed by American reinsurance companies such as Web must be governed according to one set of rules. Cf. BBS Norwalk One, Inc. v. Raccolta, Inc., 60 F. Supp.2d 123, 129 (S.D.N.Y. 1999) (claim of breach of fiduciary duty to a corporation governed by law of the state where corporation was incorporated). The United States has the greatest substantive interest in determining that standard.*fn18 As such, American law governs the duty Web owed to Odyssey even though, overall, intentional torts against Odyssey may be governed according to British law.

Finally, for the purposes of evaluating the sufficiency of plaintiff's fraud pleadings, it is Rule 9(b) of the Federal Rules of Civil Procedure that governs. See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir. 1994); In re Time Warner, Inc. Securities Litigation, 9 F.3d 259, 265 (2d Cir. 1993); Stamm v. Barclays Bank of New York, 960 F. Supp. 724, 729-30 (S.D.N.Y. 1997).

a. Rule 9(b) Analysis

Allegations of fraud must be pled with sufficient particularity to serve the three goals of Rule 9(b), namely: (1) to provide a defendant with fair notice of the claims against it; (2) to protect a defendant from harm to its reputation or goodwill by unfounded allegations of fraud; and (3) to reduce the number of strike suits. See DiVittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Segal v. Gordon, 467 F.2d 602, 606-07 (2d Cir. 1972); Granite Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp.2d 275, 285-86 (S.D.N.Y. 1998).

"To pass muster [under Rule 9(b)] in this Circuit, a complaint `must allege with some specificity the acts constituting fraud' . . .; conclusory allegations that defendant's conduct was fraudulent or deceptive are not enough." Lobatto v. Berney, No. 98 Civ. 1984, 1999 WL 672994, at *9 (S.D.N.Y. Aug.26, 1999) (quoting Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982); Rodman v. Grant Foundation, 608 F.2d 64, 73 (2d Cir. 1979)). Specifically, Rule 9(b) requires plaintiffs to allege "(1) the specific statement or omission; (2) the aspect of the statement or omission that makes it false or misleading; (3) when the statement was made; (4) where the statement was made; and (5) which defendant was responsible for the statement or omission." Lobatto, 1999 WL 672994, at *9; Ross v. Patrusky, Mintz & Semel, No. 90 Civ. 1356, 1997 WL 214957, at *15 (S.D.N.Y. Apr. 29, 1997).

In cases where the alleged fraud consists of an omission and the plaintiff is unable to specify the time and place because no act occurred, the complaint must still allege: (1) what the omissions were; (2) the person responsible for the failure to disclose; (3) the context of the omissions and the manner in which they misled the plaintiff, and (4) what defendant obtained through the fraud. Weaver v. Chrysler Corp., 172 F.R.D. 96, 101 (S.D.N.Y. 1997); Adler v. Berg Harmon Assoc., 816 F. Supp. 919, 924 (S.D.N.Y. 1993). In this case, plaintiff does not allege that Web made any statements directly to Odyssey, let alone any that directly contained falsehoods or misrepresentation.

When fraud is alleged against multiple defendants, a plaintiff must plead with particularity by setting forth separately the acts or omissions complained of by each defendant. Ellison v. American Image Motor Co., 36 F. Supp.2d 628, 640 (S.D.N.Y. 1999) (citing, inter alia, Manela v. Gottlieb, 784 F. Supp. 84, 87 (S.D.N.Y. 1992)). See also Pallickal v. Technology International, Ltd., No. 94 Civ. 5738, 1996 WL 153699, at *1 (S.D.N.Y. Apr.3, 1996) ("[w]here there are multiple defendants, a complaint must identify which defendant is responsible for which act"). In Skydell v. Ares-Serono S.A., 892 F. Supp. 498, 501-02 (S.D.N.Y. 1995), this Court (Duffy, J.) dismissed a claim against one of two co-defendants where the complaint failed to sufficiently allege that the dismissed defendant "itself committed any misrepresentations or non-disclosures."

Similarly, in Department of Economic Development v. Arthur Andersen & Co. (U.S.A.), 747 F. Supp. 922, 938-39 (S.D.N Y 1990), the court dismissed common law fraud claims against third-party defendants based on the "view that at the very least, Rule 9(b) requires some identification of specific alleged misrepresentations or omissions in the financial statements supplied to [the plaintiff]" and "[n]either the main complaint nor third-party complaint" sufficiently alleged facts that could support the inference that the third-party defendants were aware what was in the contents of the allegedly fraudulent financial statements. Cf. Weinberger v. Kendrick, 451 F. Supp. 79, 83 (S.D.N.Y. 1978) ("Although plaintiffs have alleged the manner in which [the information provided] was false or misleading, they have omitted assertions crucial to the vitality of the claim, [to wit], nowhere do the pleadings provide the approximate amount of the [consolidated financial statements'] overstatement, notice of which defendant is entitled.").

With these requirements in mind, we find that plaintiff's allegations are deeply flawed. Of the specifically delineated transactions which plaintiff claims are "representative of defendants' manipulative practices," Comp. ¶ 48, only four somehow involve Web. Although the pleadings regarding these four agreements do contain a smattering of statistics and industry jargon, they do not approach the level of specificity (as applied to Web) required by Rule 9(b). For example, Odyssey's pleading regarding the "Christmas Eve Placements" alleges that the defendants collectively "concealed from Odyssey information concerning the loss history and certain unprofitability of these transactions." Comp. ¶ 60. At a minimum, 9(b) means that plaintiffs may not maintain an action in fraud by simply alleging a failure to disclose "information." And for the reasons discussed above, it is insufficient to make such an allegation against defendants collectively. See Ellison, 36 F. Supp.2d at 640.

Reading plaintiff's "Unicare Retrocession" pleadings generously, plaintiff maintains that Web was aware that: (a) "75% of the losses would be transferred to Odyssey;" (b) the original insurer would keep 57% of the premium; (c) Odyssey's losses would exceed $42 million; (d) Web would derive "substantial management fees for `underwriting the transaction;'" and (e) the specific amounts that the other intermediaries would make on the transaction. Comp. ¶ 69. However, the Amended Complaint does not directly allege that Web omitted to inform Odyssey of these "facts." Rather, according to the Amended Complaint, they are merely "illustrative of how a cession could be structured to generate a guaranteed profit to All American and loss to Odyssey."

Even if Odyssey had pled that these were fraudulently omitted facts, Odyssey still has not distinguished which of the six parties to the Unicare Retrocession was specifically responsible for the failure to disclose, nor have they distinguished how these "facts" relate to each party. Moreover, Odyssey has failed to allege with specificity that employees of Web knew that Euro had failed to inform Odyssey of these "facts." See, e.g., Department of Economic Development, 747 F. Supp. at 938-39. To the extent that these "facts" are forecasts as to the profitability of insurance policies, which are by their nature subject to elements of risk, plaintiff has cited no authority for the proposition that a defendant may ...


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