IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 96-20769
_______________
STUART G. HAYNSWORTH, et al.,
Plaintiffs-Appellants,
VERSUS
THE CORPORATION, a/k/a Lloyd's of London,
a/k/a Lloyd's, a/k/a the Council of Lloyd's,
a/k/a the Society of Lloyd's,
a/k/a the Committee of Lloyd's,
Defendant-Appellee.
* * * * * * * * * * * * * * * * * * * * * * *
_______________
No. 96-20805
_______________
CHARLES ROBERT LESLIE,
Plaintiff-Appellee,
VERSUS
LLOYD’S OF LONDON, ETC., ET AL.,
Defendants,
LLOYD'S OF LONDON, a/k/a the Corporation of Lloyd's,
a/k/a Lloyd's, a/k/a the Society of Lloyd's,
a/k/a the Committee of Lloyd's,
Defendant-Appellant.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
_________________________
August 29, 1997
Before SMITH, BARKSDALE, and BENAVIDES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
These are consolidated appeals in suits by individual
underwriters against the Corporation of Lloyd's (“Lloyd's”),1 the
central administrative body of the insurance market known as
Lloyd's of London. In No. 96-20769, Stuart Haynsworth and thirty-
three others appeal the dismissal of their suits based on a
contractual forum selection/choice-of-law clause and, in the
alternative, forum non conveniens (“f.n.c.”). In No. 96-20805,
Lloyd's appeals the refusal to dismiss on the same grounds.
Concluding that the parties are bound by the contracts they entered
into, we affirm the judgment of dismissal in No. 96-20769 and
reverse and render a judgment of dismissal in No. 96-20805.
I.
Some background as to the nature and structure of Lloyd's of
London is a necessary introduction to the issues. Lloyd's is a
1
We employ this shorthand with the recognition that, strictly speaking,
Lloyd's of London is simply a trademark referring to a market for insurance, and
the Corporation of Lloyd's the entity that governs that market. For convenience,
however, we use “Lloyd's” throughout this opinion to refer collectively to the
various defendants in both appeals, distinguishing between separate entities by
use of their specific names as necessary.
2
300-year-old market in which individual and corporate underwriters
known as “Names” underwrite insurance. The Corporation of Lloyd's,
which is also known as the Society of Lloyd's, provides the
building and personnel necessary to the market's administrative
operations. The Corporation is run by the Council of Lloyd's,
which promulgates “Byelaws,” regulates the market, and generally
controls Lloyd's administrative functions.
Lloyd's does not underwrite insurance; the Names do so by
forming groups known as syndicates. Within each syndicate,
participating Names underwrite for their own accounts and at their
own risk. That is, as a matter of English law, Names' liability is
several rather than joint, and individual Names are not responsible
for the unfulfilled obligations of others. Each syndicate is
managed and operated by a Managing Agent, who owes the Names a
contractual duty to conduct the syndicate's affairs with reasonable
care. Syndicates have no legal existence or identity apart from
the Names they comprise.
Names must become members of Lloyd's in order to participate
in the market. Prospective members are solicited and assisted in
the process of joining by Member's Agents, whose duties to the
Names are fiduciary in nature. Names must pass a means test to
ensure their ability to meet their underwriting obligations, post
security (typically, a letter of credit), and personally appear in
London before a representative of the Council of Lloyd's to
acknowledge their awareness of the various risks and requirements
3
of membership, and in particular the fact that underwriting in the
Lloyd's market subjects them to unlimited personal liability.
Participation in the market also requires the execution of a
number of contracts and agreements, the most important of which is
the General Undertaking, the standardized contract between Lloyd's
and the individual Names. Names additionally must enter into a
Member's Agent's agreement, the contract that defines the
relationship between the Name and his chosen Member's Agent, and
one or more Managing Agent's agreements, which define the
relationships between the Name and the Managing Agents of the
syndicates he wishes to join. Under the present version of Lloyd's
Byelaws, each of these agreements must contain clauses designating
England as the forum in which disputes are to be resolved and
choosing English law as the law governing such disputes.
Prior to 1986, the General Undertaking contained a provision
requiring that disputes with agents or other Names be submitted to
arbitration in London. Although this provision apparently did not
cover disputes between Names and Lloyd's itself, it did require
arbitration of claims against virtually any other entity, including
anyone “not a party to any agreement with [the Name] referring such
claims to arbitration.” Following Parliament's passage of the
Lloyd's Act of 1982, all Names, as a condition of continuing to be
Names, were required to sign a new General Undertaking (the “1986
General Undertaking”), clause 2 of which replaced the arbitration
provision with language that is the focus of this case:
4
2.1 The rights and obligations of the parties arising
out of or relating to the Member's membership of,
and/or underwriting of insurance business at,
Lloyd's and any other matter referred to in this
Undertaking shall be governed by and construed in
accordance with the laws of England.
2.2 Each party hereto irrevocably agrees that the
courts of England shall have exclusive jurisdiction
to settle any dispute and/or controversy of
whatsoever nature arising out of or relating to the
Member's membership of, and/or underwriting of
insurance business at, Lloyd's and that accordingly
any suit, action or proceeding (together in this
Clause 2 referred to as “Proceedings”) arising out
of or relating to such matters shall be brought in
such courts and, to this end, each party hereto
irrevocably agrees to submit to the jurisdiction of
the courts of England and irrevocably waives any
objection which it may have now or hereafter to
(a) any Proceedings being brought in any such court
as is referred to in this Clause 2 and (b) any
claim that any such Proceedings have been brought
in an inconvenient forum and further irrevocably
agrees that a judgment in any Proceedings brought
in the English courts shall be conclusive and
binding upon each party and may be enforced in the
courts of any other jurisdiction.
2.3 The choice of law and jurisdiction referred to in
this Clause 2 shall continue in full force and
effect in respect of any dispute and/or controversy
of whatsoever nature arising out of or relating to
any of the matters referred to in this Undertaking
notwithstanding that the Member ceases, for any
reason, to be a Member of, or to underwrite
insurance business at, Lloyd's.
Each of the plaintiffs in the appeals before us signed the 1986
General Undertaking and agreed to these forum selection/choice of
law provisions, which we refer to as the “FS/COL clause.”
Although underwriting at Lloyd's appears generally to have
been a profitable endeavor up until the mid-1980's, at that time
massive liability for pollution and asbestos-related injuries began
5
to change the situation somewhat. According to the plaintiffs,
when Lloyd's full-time members or “insiders” became aware of these
risks, they concocted a sinister scheme to shift the liabilities
onto unsuspecting American investors such as the plaintiffs.
In order to escape these liabilities, they claim, the insiders
recruited new Names and steered them into syndicates, where they
unwittingly underwrote high-risk asbestos reinsurance and toxic
waste obligations, of which policies the insiders wanted no part.
As a consequence of being placed in these syndicates, the
plaintiffs allege, they have incurred large financial losses
already and remain liable for a great deal more.
The massive excess losses sustained by Names in the late
1980's and early 1990'sSSby Lloyd's estimate, something in the
neighborhood of $22 billionSShave spawned a series of lawsuits
throughout the United States. The instant appeals are but the
latest chapter in this litigation, a brief summary of which is
instructive to the issues before us. In Hirsch v. Oakeley Vaughan
Underwriting Ltd., No. 89-2563 (5th Cir. May 31, 1990)
(unpublished), an American Name sued Lloyd's and his agents,
claiming common law fraud. We dismissed on the basis of f.n.c.,
finding the suit “aim[ed] at the heart of the unique self-
regulatory mechanism within Lloyd's, which is a product of complex
English legislation.” Slip op. at 7.
Various Names next brought suit in the Second, Seventh, and
6
Tenth Circuits, claiming that Lloyd's' above-described alleged
conduct violated the federal securities laws. Lloyd's defended in
part on the ground that the 1986 General Undertaking's FS/COL
clauseSSthe clause at issue hereSSrequires all disputes to be
litigated in England, to which the Names responded that the FS/COL
clause constitutes an impermissible attempt to waive the pro-
tections of U.S. securities laws. The Second, Seventh, and Tenth
Circuits rejected the Names' arguments, concluding that the
securities laws' antiwaiver provisions did not bar dismissal of the
suits.2 A similar contention as to the antiwaiver provisions of
the Ohio securities laws was later rejected by the Sixth Circuit.3
More recently, the Fourth Circuit joined this chorus of authority
in rejecting the claim that the federal securities statutes render
the FS/COL clause void.4 A number of courts also have rejected
Names' attempts to avoid their contractual obligations by alleging
that their agreement to the 1986 General Undertaking was procured
by fraud, or that the FS/COL clause is unconscionable.5
2
See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1366 (2d Cir. 1993);
Bonny v. Society of Lloyd's, 3 F.3d 156, 162 (7th Cir. 1993); Riley v. Kingsley
Underwriting Agencies, Ltd., 969 F.2d 953, 958 (10th Cir. 1992).
3
See Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1229-32 (6th Cir. 1995).
4
See Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996), mandamus
denied sub nom. In re Allen, 117 S. Ct. 2497 (1997).
5
See Bonny, 3 F.3d at 160 n.10; Riley, 969 F.2d at 960; Stamm v. Barclays
Bank, 960 F. Supp. 724, 730-33 (S.D.N.Y. 1997); Tufts v. Corporation of Lloyd's,
No. 95-CIV-3480(JFK), 1996 WL 533639, at *5-*7 (S.D.N.Y. Sept. 19, 1996); McDade v.
NationsBank of Tex., No. H-94-3714, slip op. at 4-5 (S.D. Tex. June 26, 1995)
(unpublished); see also Hugel v. Corporation of Lloyd's, 999 F.2d 206, 210-11 (7th
(continued...)
7
Indeed, aside from one of the courts below in the instant
case, only one courtSSthe Ninth CircuitSShas refused to enforce the
FS/COL in a suit brought by Names against Lloyd's.6 Not sur-
prisingly, the plaintiffs rely heavily on Richards and urge us to
adopt its conclusion that the antiwaiver provisions of the federal
securities laws prevent the FS/COL clause from being enforced. See
id. at 1426. Following the arguments that have been rejected by
other courts, they also claim that Lloyd's procured their agreement
to the General Undertaking, and, in particular, the FS/COL clause,
by fraud and overreaching.
The first of the instant casesSSNo. 96-20769 (“Haynsworth”)SSis
thus a suit by seventy-seven Names against Lloyd's claiming fraud,
breach of fiduciary duty, violations of the Texas Deceptive Trade
Practice-Consumer Protection Act (the “DTPA”), TEX. BUS. & COM. CODE
ANN. § 17.41 et seq. (Vernon 1987 & Supp. 1997), and violations of
the Securities Act (the “Texas Securities Act”), TEX. REV. CIV. STAT.
ANN. art. 581-1 et seq. (Vernon 1964 & Supp. 1997). Shortly after
Haynsworth was filed, Lloyd's moved to dismiss based on the General
Undertaking's FS/COL clause, f.n.c., and, as to fifty-three of the
plaintiffs who already had litigated or were then actively
litigating their claims in the Second and Ninth Circuits,
(...continued)
Cir. 1993) (rejecting claim that the FS/COL clause should not be enforced because
litigation in England would be so “gravely difficult and inconvenient as to deprive
[plaintiffs] of their day in court.”).
6
See Richards v. Lloyd's of London, 107 F.3d 1422, 1424-30 (9th Cir. 1997).
8
collateral estoppel. On July 17, 1996, the district court
dismissed the case on the basis of the FS/COL clause and, in the
alternative, f.n.c., and thirty-four of the plaintiffs now appeal
that dismissal.7
The second caseSSNo. 96-20805 (“Leslie”)SSarises from Charles
Leslie's action against Lloyd's alleging violations of the federal
securities laws (specifically, 15 U.S.C. § 78j(b) and rule 10b-5,
17 C.F.R. 240.10b-5), fraud, breach of fiduciary duty, and
violations of the DTPA. As in Haynsworth, Lloyd's moved to dismiss
on the basis of the FS/COL clause and f.n.c. The district court
denied the motion but certified the questions presented by it for
interlocutory appeal under 28 U.S.C. § 1292(b).
II.
Although there previously was some uncertainty on this point,
we recently have held that the enforceability of a forum selection
clause is a question of law reviewable de novo. Mitsui & Co.
(USA), Inc. v. Mira M/V, 111 F.3d 33, 35 (5th Cir. 1997). As the
parties do not raise it, we therefore need not reach the
considerably more enigmatic question of whether motions to dismiss
on the basis of forum selection clauses are properly brought as
motions under FED. R. CIV. P. 12(b)(1), 12(b)(3), or 12(b)(6), or 28
7
Many of these plaintiffs-appellants were or still are litigants in suits
against Lloyd's in the Second and Ninth Circuits. Because we affirm the Haynsworth
judgment of dismissal on the merits of the forum selection clause, however, we need
not and do not reach any issues of collateral estoppel.
9
U.S.C. § 1406(a).8
Before considering the core issues, we must address whether
federal or Texas law applies to the FS/COL clause enforceability
determination. Federal jurisdiction in Haynsworth is based on
diversity; jurisdiction in Leslie is based both on diversity and on
the presence of a federal question. Both district courts relied on
a combination of federal and Texas authorities in reaching their
respective enforceability conclusions, although the Leslie court
expressly recognized that federal law governs the question. Other
courts that have considered the enforceability of the 1986 General
Undertaking's FS/COL clause in similar situations have either
pretermitted the choice of law issue or applied federal law without
discussion.9
The Leslie court's conclusion on this issue was correct:
Federal law applies to the FS/COL clause enforceability
determination. In The Bremen v. Zapata Off-Shore Co., 407 U.S. 1
8
Compare, e.g., AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d
148, 152-59 (2d Cir. 1984) (permitting rule 12(b)(1) motion) with Albany Ins. Co.
v. Almacenadora Somex, S.A., 5 F.3d 907, 909 & n.3 (5th Cir. 1993) (treating
motion as one under rule 12(b)(3)) and Commerce Consultants Int'l, Inc. v.
Vetrerie Riunite, S.p.A., 867 F.2d 697, 699-700 (D.C. Cir. 1989) (affirming
dismissal under rule 12(b)(3)) with Lambert v. Kysar, 983 F.2d 1110, 1112 n.1
(1st Cir. 1993) (stating that rule 12(b)(6) is the appropriate vehicle) with
International Software Sys. v. Amplicon, 77 F.3d 112, 114 (5th Cir. 1996)
(analyzing as motion to dismiss under 28 U.S.C. § 1406(a)). See also In re
Fireman's Fund Ins. Cos., 588 F.2d 93, 94 (5th Cir. 1979) (approving order
transferring venue pursuant to 28 U.S.C. § 1404(a)).
9
See Shell, 55 F.3d at 1229 (declining to decide the issue on the ground that
federal and Ohio law treat forum selection clauses similarly); Richards, 107 F.3d
at 1426-29 (applying federal law); Bonny, 3 F.3d at 159-61 (same); Hugel, 999 F.2d
at 209-11 (same); Riley, 969 F.2d at 956-58 (same); Stamm, 960 F. Supp. at 728-30
(same).
10
(1972), a decision we discuss in detail infra, the Court set forth
a framework of enforceability standards to be applied by federal
courts sitting in admiralty. Id. at 10-15. Just two years later,
the Court implicitly extended The Bremen's holding beyond the realm
of admiralty by applying it to a claim brought under the federal
securities laws. See Scherk v. Alberto-Culver Co., 417 U.S. 506,
518-21 (1974). Following that cue, this court and others have not
hesitated to apply these federal enforceability standards in non-
admiralty cases.10
Whether The Bremen's rules should be applied by federal courts
sitting in diversity is a more difficult question, but fortunately
one that this circuit recently has resolved. In International
Software Sys., 77 F.3d at 114-15, we held that The Bremen's rules
extend to dismissal determinations based on forum selection clauses
in diversity cases, a holding that governs the case at bar.
Because of this, the district courts a quo erred insofar as they
applied Texas rather than federal law in their respective
enforceability determinations. The proper law to apply to such
questions is federal, whether jurisdiction be based on diversity,
a federal question, or some combination of the two.11
10
See, e.g., Seattle-First Nat'l Bank v. Manges, 900 F.2d 795, 799 (5th Cir.
1990) (bankruptcy case); AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d
148, 156-60 (2d Cir. 1984) (federal securities fraud case); In re Fireman's Fund
Ins. Cos., 588 F.2d 93, 95 (5th Cir. 1979) (Miller Act).
11
Accord Jones v. Weibrecht, 901 F.2d 17, 18-19 (2d Cir. 1990) (applying
federal law to enforceability determination in diversity contract case); Manetti-
(continued...)
11
III.
A.
In The Bremen, 407 U.S. at 9, the Court, rejecting as a
“parochial concept” the idea that “notwithstanding solemn contracts
. . . all disputes must be resolved under our laws and in our
courts,” held that federal courts presumptively must enforce forum
selection clauses in international transactions. Since The Bremen,
the Court has consistently followed this rule and, in fact, has
enforced every forum selection clause in an international contract
that has come before it.12
Public policy weighs strongly in favor of The Bremen's
presumption, because uncertainty as to the forum for disputes and
applicable law “will almost inevitably exist with respect to any
contract touching two or more countries.” Scherk, 417 U.S. at 516.
That is, “[t]he elimination of all such uncertainties by agreeing
in advance on a forum acceptable to both parties is an
indispensable element in international trade, commerce, and
contracting.” The Bremen, 407 U.S. at 13-14. As we recently
(...continued)
Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 512-13 (9th Cir. 1988) (same;
diversity tort case); Bryant Elec. Co. v. City of Fredericksburg, 762 F.2d 1192,
1196-97 (4th Cir. 1985) (same; diversity contract case).
12
See Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528,
, 115 S. Ct. 2322, 2330 (1995); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585,
595 (1991); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
640 (1985); Scherk, 417 U.S. at 519-20.
12
stated in a case implicating these concerns, “[t]he Supreme Court
has therefore instructed American courts to enforce [forum
selection and choice of law] clauses in the interests of
international comity and out of deference to the integrity and
proficiency of foreign courts.” Mitsui, 111 F.3d at 35 (citing
Mitsubishi, 473 U.S. at 629).
The presumption of enforceability may be overcome, however, by
a clear showing that the clause is “'unreasonable' under the
circumstances.” The Bremen, 407 U.S. at 10. Unreasonableness
potentially exists where (1) the incorporation of the forum
selection clause into the agreement was the product of fraud or
overreaching; (2) the party seeking to escape enforcement “will for
all practical purposes be deprived of his day in court” because of
the grave inconvenience or unfairness of the selected forum;
(3) the fundamental unfairness of the chosen law will deprive the
plaintiff of a remedy; or (4) enforcement of the forum selection
clause would contravene a strong public policy of the forum state.
Carnival Cruise Lines, 499 U.S. at 595; The Bremen, 407 U.S. at 12-
13, 15, 18. The party resisting enforcement on these grounds bears
a “heavy burden of proof.” The Bremen, 407 U.S. at 17.
The plaintiffs rest their arguments on the first and fourth of
these exceptions. Specifically, they allege that the General
Undertaking's FS/COL clause is unenforceable because of fraud and
overreaching, and violates both federal and Texas public policy.
13
The Haynsworth district court rejected these arguments, enforced
the clause pursuant to The Bremen's presumption, and dismissed the
suit. The Leslie district court did the opposite, concluding that
Leslie had established he was induced into agreeing to the clause
through fraud and overreaching and that the clause violates both
United States and Texas public policy.
B.
Fraud and overreaching must be specific to a forum selection
clause in order to invalidate it. That is, The Bremen's exception
for unreasonable fraud or overreaching
does not mean that any time a dispute arising out of a
transaction is based upon an allegation of fraud . . .
the clause is unenforceable. Rather, it means that an
arbitration or forum-selection clause in a contract is
not enforceable if the inclusion of that clause in the
contract was the product of fraud or coercion.
Scherk, 417 U.S. at 519 n.14 (emphasis in original) (citing Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)).
Thus, allegations of such conduct as to the contract as a wholeSSor
portions of it other than the FS/COL clauseSSare insufficient; the
claims of fraud or overreaching must be aimed straight at the
FS/COL clause in order to succeed.13
The plaintiffs protest that Prima Paint dealt exclusively with
13
See, e.g., Prima Paint, 388 U.S. at 403-04; Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Haydu, 637 F.2d 391, 398 & n.11 (5th Cir. Unit B Feb. 1981)
(holding that to render arbitration clause unenforceable, coercion and duress must
relate specifically to the clause rather than to the contract as a whole).
14
arbitration clauses under the United States Arbitration Act and
that there is no authority for the proposition that the above rule
applies to forum selection or choice-of-law clauses as well. This
flatly contradicts the language of Scherk, which at a minimum
extended the rule of Prima Paint to forum selection clauses in
general. See Scherk, 417 U.S. at 519 n.14. Moreover, Scherk and
later courts have noted that “foreign arbitration clauses are but
a subset of foreign forum selection clauses in general.” Vimar
Seguros, 115 S. Ct. at 2326 (citing Scherk, 417 U.S. at 519).
In Mitsui, we rebuffed a similar attempt to distinguish
between arbitration and forum selection/choice-of-law clauses for
enforceability purposes, noting that even on the Vimar Seguros's
dissent's view, “in relevant aspects, there is little difference
between the two.” Mitsui, 111 F.3d at 36 (quoting Vimar Seguros,
515 U.S. at n.7, 115 S. Ct. at 2333 n.7 (Stevens, J.,
dissenting)). The proposed distinction contradicts both Supreme
Court and Fifth Circuit precedent and consequently must be
rejected.
It follows that, to the extent the plaintiffs claim fraud and
overreaching in aspects of the General Undertaking other than the
FS/COL clause, their allegations are irrelevant to enforceability.
As Lloyd's points out, many of the plaintiffs' claims of fraud and
overreaching fall squarely into this category. Though we need not
detail them all, by way of example these include the contention
15
that Lloyd's failed adequately to disclose the effect of the
Lloyd's Act of 1982, the assertion that Lloyd's disclosed critical
risks only after the plaintiffs had been induced into signing the
General Undertaking, and the claim that Lloyd's conditioned the
Names' continued membership on signing the version of the General
Undertaking that contained the FS/COL clause. While these
allegations, if proved, might very well be relevant to the merits
of the claims in the absence of a forum selection clause, they are
wholly inapposite to our enforceability determination, which must
of course precede any analysis of the merits. See Smith Barney
Shearson, Inc. v. Boone, 47 F.3d 750, 752 (5th Cir. 1995).
The plaintiffs argue that, because the FS/COL clause was the
primary difference between the 1986 General Undertaking and
previous agreements, their evidence of fraud regarding the General
Undertaking as a whole is actually evidence as to the FS/COL clause
specifically. We note initially that the FS/COL clause is not the
only difference between the 1986 and pre-1986 General Undertakings;
the 1986 version added a provision by which the Names agreed to
abide by the dictates of, and Byelaws promulgated under, the
Lloyd's Act of 1982, which substantially altered the regulatory
regime in which Lloyd's operates. The 1986 General Undertaking
also, for the first time, required Names to obey “any direction
given or provision or requirement made or imposed by the Council,”
which at the time was a relatively new entity created by the
16
Lloyd's Act of 1982.
Moreover, the inclusion of the FS/COL clause was not the
radical change that plaintiffs claim it to be, as the previous
version of the General Undertaking had contained an arbitration
clause requiring that disputes with other Names or agents be
arbitrated in London. Although the FS/COL clause in the 1986
General Undertaking is greater in scope, we have already noted that
such arbitration clauses are merely a specialized subset of the
larger group of forum selection clauses. In short, the pre- and
post-1986 General Undertakings are sufficiently different that the
1986 version cannot be said merely to have added the FS/COL clause.
The allegations that go to fraud or overreaching in the General
Undertaking as a whole are just that: allegations that go to the
General Undertaking as a whole. Scherk and Prima Paint render them
inapposite.
Precious little remains of the plaintiffs' contentions after
they run the gamut of this requirement. If any argument as to
fraud plausibly survives, it is that Lloyd's failed adequately to
disclose the effects of the FS/COL clause when it presented the
plaintiffs with the version of the General Undertaking that
included it. According to the plaintiffs, they were fraudulently
induced to sign the 1986 General Undertaking in reliance on
assurances by Lloyd's14 that the new agreement contained “few
14
In fact, the assurances were by various Member's Agents allegedly acting
(continued...)
17
variations of substance” from the old.15 This, they claim, was a
fraudulent omission specifically as to the FS/COL, because nothing
in Lloyd's description of these changes mentioned it.
We find this argument unpersuasive. In Bhatia v. Johnston,
818 F.2d 418 (5th Cir. 1987), a plaintiff attempted to avoid an
arbitration clause in a brokerage agreement by claiming he had been
told the clause was “the same as” that in his previous contract.
Id. at 422 n.5. Applying Prima Paint, we held that whatever
misrepresentations might have been made were “related to the
entirety” of the new agreement and therefore were insufficient to
block enforcement of the clause. Id. at 422. The plaintiffs'
argument is at best no different from Bhatia's, and is more likely
quite a bit weaker insofar as they were at least alerted to the
existence of some “variations.” Our holding in Bhatia compels the
conclusion that their claims go to the 1986 General Undertaking as
a whole and that they therefore cannot bar enforcement of the
FS/COL clause.
Alternatively, the fraud claim fails, even if plaintiffs'
contentions somehow survive Prima Paint. The FS/COL clause was
(...continued)
at Lloyd's direction.
15
Lloyd's claims that, to the extent these assurances were made, they
referred to the agreements between the Names and their respective Members' Agents
rather than to the 1986 General Undertaking. Although the record appears to
support Lloyd's on this point, we need not resolve this highly fact-specific
dispute, for, as discussed infra, the FS/COL clause is enforceable in any case.
For the limited purposes of this discussion, we therefore adopt arguendo the
Leslie district court's finding that the statements referred to the 1986 General
Undertaking.
18
straightforward and was a prominent part of the one-and-one-half-
page General Undertaking, and the plaintiffs are presumed to have
known what it said.16 The plaintiffs were sophisticated parties
contracting voluntarily; it is not for us to impose a duty upon one
party to counsel the other as to the risks and benefits of a
contract. Indeed, as Lloyd's points out, there was nothing to
explain. The duty was the plaintiffs' to read the plain terms of
the agreement, not Lloyd's to lecture them about it.
These conclusions effectively dispose of the plaintiffs'
claims of overreaching, as well. In essence, they argue that
Lloyd's engaged in overreaching by forcing the Names to choose
between signing a contract with the FS/COL clause and terminating
their membership as Names. The Leslie district court agreed,
reasoning that Lloyd's “take-it-or-leave-it offer” unfairly
deprived Leslie of “the option of rejecting with impunity.”
We emphatically disagree. Although there is some ambiguity as
to the precise boundaries of what constitutes “overreaching,” a
nebulous concept at best,17 we can state with certainty that none
occurred here. As Lloyd's points out, the argument that the 1986
16
E.g., In re Cajun Elec. Power Coop., 791 F.2d 353, 359 (“'A person who
signs a written instrument is presumed to know its contents and cannot avoid its
obligations by contending that he did not read it, or that it was not explained or
that he did not understand it.'”) (quoting Smith v. Leger, 439 So. 2d 1203, 1206
(La. App. 1st Cir. 1983)); Bonny, 3 F.3d at 160 n.10; St. Petersburg Bank & Trust
Co. v. Boutin, 445 F.2d 1028, 1032 (5th Cir. 1971).
17
“Overreaching” is “that which results from an inequality of bargaining
power or other circumstances in which there is an absence of meaningful choice
on the part of one of the parties.” BLACK'S LAW DICTIONARY 1104 (6th ed. 1990).
19
General Undertaking constituted a “take-it-or-leave-it offer” goes
to the contract as a whole and therefore cannot overcome the FS/COL
clause under Prima Paint. As we recently stated in the context of
an arbitration clause in an employment contract, the claim that an
agreement “is an unconscionable contract of adhesion is an attack
on the formation of the contract generally, not an attack on the
arbitration clause itself.” Rojas v. TK Communications, Inc.,
87 F.3d 745, 749 (5th Cir. 1996).
Even were we not to apply Prima Paint, Carnival Cruise Lines
would compel us to reject this argument on the merits. There, the
Court enforced a forum selection clause against an unsophisticated
cruise ship passenger, notwithstanding the disparity in the
parties' bargaining power and the fact that the contract had not
been subject to negotiation. 499 U.S. at 593-95. Aside from the
fact that Haynsworth, Leslie, and the other plaintiffs are
considerably more sophisticated than was the passenger in Carnival
Cruise Lines, we find nothing of substance to distinguish that case
from the case at bar. Indeed, a careful examination of the
evidence underlying the plaintiffs' claims reveals that the 1986
General Undertaking was an agreement considerably more equitable
than the one at issue there. Carnival Cruise Lines thus compels us
to hold the plaintiffs to their respective contracts, including the
20
FS/COL clause to which they duly agreed.18
C.
The plaintiffs also contend that the General Undertaking's
FS/COL clause is “unreasonable” because it contravenes public
policy as embodied in the antiwaiver provisions of federal
securities law, Texas securities law, and the Texas DTPA. The
Leslie district court agreed with this argument; the Haynsworth
district court did not. Although we are unable to identify any
decision specifically addressing the FS/COL clause as regards the
antiwaiver provisions of the Texas laws, five of our sister
circuits have previously rejected this argument as to the federal
statutes.19 Besides the district court in Leslie, the only court
that has ever refused to enforce the General Undertaking's FS/COL
clause on these grounds is the Ninth Circuit. See Richards, 107
F.3d at 1426-28.
The antiwaiver provisions are straightforward. Section 14 of
the Securities Act of 1933 provides: “Any condition, stipulation,
or provision binding any person acquiring any security to waive
18
Accord Kevlin Serv., Inc. v. Lexington State Bank, 46 F.3d 13, 15 (5th Cir.
1995) (holding that The Bremen's presumption of enforceability applies to forum
selection clauses in form contracts); Dillard v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 961 F.2d 1148, 1154-55 (5th Cir. 1992) (holding that adhesion contracts
requiring arbitration of securities disputes are not unconscionable as a matter of
law).
19
See Allen, 94 F.3d at 928-30; Shell, 55 F.3d at 1229-32; Bonny, 3 F.3d at
160-62; Roby, 996 F.2d at 1363-66; Riley, 969 F.2d at 957-58.
21
compliance with any provision of this subchapter or of the rules
and regulations of the Commission shall be void.” 15 U.S.C. § 77n.
Section 29(a) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78cc(a), and the antiwaiver provision of the Texas Securities
Act, TEX. REV. CIV. STAT. ANN. art. 581-33L (Vernon Supp. 1997), are
substantively identical for purposes of the issue before us.
Similarly, the antiwaiver provision of the DTPA provides generally
that “[a]ny waiver by a consumer of the provisions of this
subchapter is contrary to public policy and is unenforceable and
void.” DTPA § 17.42(a), TEX. BUS. & COM. CODE ANN. § 17.42(a) (Vernon
Supp. 1997).
As a threshold matter, Lloyd's argues that nothing Names
acquire in the course of their relationship with Lloyd's
constitutes a “security” within the meaning of federal and Texas
securities laws and that the plaintiffs are not “consumers” who
have acquired “services” within the meaning of the DTPA. See DTPA
§ 17.45, TEX. BUS. & COM. CODE ANN. § 17.45 (Vernon 1987) (defining
“consumer” and “services”). The Supreme Court confronted similar
arguments in Scherk, ultimately affirming a dismissal without
addressing the question of whether the plaintiffs had acquired
securities. Scherk, 417 U.S. at 514 n.8. Because, as the Supreme
Court did in Scherk, we ultimately find the forum selection clause
enforceable, we follow the same route here and express no view on
the merits of these arguments.
22
As with the fraud and overreaching claims, the basic framework
for analyzing the plaintiffs' Texas and federal public policy
arguments is the strong presumption of enforceability established
by The Bremen and Scherk, and the highest hurdle they must overcome
to demonstrate “unreasonableness” is Scherk. There, the plaintiff
alleged violations of § 10(b) of the Exchange Act and attempted to
resist enforcement of an arbitration clause on the basis of the
act's antiwaiver provision, one of the statutes invoked here.
Applying The Bremen, the Court rejected this argument and along
with it the view that
only United States laws and United States courts should
determine this controversy in the face of a solemn
agreement between the parties that such controversies be
resolved elsewhere. . . . To determine that “American
standards of fairness” . . . must nonetheless govern the
controversy demeans the standards of justice elsewhere in
the world, and unnecessarily exalts the primacy of United
States law over the laws of other countries.
Scherk, 417 U.S. at 517 n.11. The Court went on to reiterate The
Bremen's rejection of the “parochial” notion that all disputes in
international business transactions “must be resolved under our
laws and in our courts,” reasoning that “[w]e cannot have trade and
commerce in world markets . . . exclusively on our terms, governed
by our laws and resolved in our courts.” Id. at 519 (quoting The
Bremen, 407 U.S. at 9).
More generally, we must tread cautiously before expanding the
operation of U.S. securities law in the international arena. The
regulatory regime Congress has constructed is “designed to protect
23
American investors and markets,” not to stamp out “any fraud that
somehow touches the United States.” Robinson v. TCI/US West
Communications Inc., 117 F.3d 900, 906 (5th Cir. 1997). To insist
on the application of American securities law where the laws of the
parties' agreed-upon forum meet this concern would be the very
height of the parochialism that The Bremen condemned. See The
Bremen, 407 U.S. at 9.
This is particularly so in the case of England, a forum that
American courts repeatedly have recognized to be fair and
impartial.20 We have not hesitated to force plaintiffs to litigate
their claims of securities fraud in that nation, differences
between English and American remedies notwithstanding.21
Beginning with the presumption that the FS/COL clause is
binding, and recognizing the plaintiffs' “heavy burden of proof” to
overcome this, The Bremen, 407 U.S. at 17, we thus proceed to
consider the plaintiffs' arguments against enforcement of the
clause. They initially attempt to distinguish Scherk on the ground
that the Names' transactions with Lloyd's were not “international
business transactions.”
The most charitable adjective with which to describe this
argument is “disingenuous.” Each of the American plaintiffs signed
20
See, e.g., id. at 12; Riley, 969 F.2d at 958; Syndicate 420 at Lloyd's
London v. Early Am. Ins. Co., 796 F.2d 821, 829 (5th Cir. 1986).
21
See Robinson, 117 F.3d at 907-09 (affirming referral of securities fraud
claims to England on ground of f.n.c.).
24
a series of agreements with English entities and traveled to
England as part of the process of becoming a Name. We need not
dwell on this contention any further, it being sufficiently obvious
that an agreement is “international” when it involves an American
Name's underwriting international insurance policies in an English
market, pooling resources with other Names from over eighty
countries, and all the while explicitly agreeing to be bound by
English law.
The plaintiffs also aver that Scherk and the Supreme Court's
other forum selection cases are distinguishable in that they dealt
with forum selection clauses unaccompanied by choice-of-law
clauses. The claimed significance of this is that a forum
selection clause, in isolation, acts only to deprive the aggrieved
party of a “procedural right” to a particular forum, whereas a
forum selection clause in combination with a choice-of-law clause
impermissibly extinguishes both a “procedural right” and a more
important “substantive right” to the remedies afforded by a
particular statute or common-law cause of action. The Ninth
Circuit placed substantial weight on this distinction, ultimately
concluding that the FS/COL clause “require[s] the waiver of
substantive provisions of the 1933 and 1934 Acts and [is]
consequently void.” Richards, 107 F.3d at 1428.
Plaintiffs are at least partially wrong in their premise, for
Scherk involved a foreign forum selection clause accompanied by a
25
choice-of-law clause selecting the law of Illinois. Scherk,
417 U.S. at 508. Presumably, this meant that the parties could
rely on the protections of the federal securities laws as well, but
the decision did not rest on this assumption. Instead, the Court
roundly rejected the notion that a forum selection clause can be
circumvented by a party's asserting the unavailability of American
remedies. See id. at 517-19.
The Scherk Court's failure to draw the distinction the
plaintiffs urge seems eminently sensible to us, for surely it is
obvious that, even in the absence of a choice-of-law clause,
enforcement of a foreign forum selection clause frequently will
result in the application of foreign law to the dispute. See
Scherk, 417 U.S. at 519 n.13. Choice of law is often one of the
reasons for obtaining a forum selection clause. The Bremen,
407 U.S. at 13-14 n.15.
It cannot be the case that, by virtue of a foreign forum
selection clause standing alone, the domestic party to an
international business agreement retains a “substantive right” to
assert the remedies and protections of American statutes in the
contractually agreed-upon forum. The sophisticated individuals
entering into these agreements are hardly so naïve as to believe
that by choosing only a foreign forum and not the law to be applied
therein, they thereby retain some inalienable privilege of
litigating their disputes under American law.
26
It is unrealistic to expect a foreign tribunal even to
entertain this notion, when faced with parties that have selected
the tribunal as their forum. There is nothing talismanic about
American law, and certainly nothing that compels foreign courts to
“exalt [its] primacy” merely because it provides remedies that
their laws do not. Scherk, 417 U.S. at 517 n.11.
The plaintiffs protest that Mitsubishi and Vimar Seguros
support their theory about combination forum selection/choice-of-
law clauses extinguishing substantive rights. It is a strained
reading of these decisions that they urge on us, however.
In Mitsubishi, 473 U.S. at 640, the Court ordered Japanese
arbitration of an American automobile dealer's antitrust claims
against its franchisor, notwithstanding that the foreign arbitrator
might misapply U.S. law. The key to the decision was the same
driving force that was behind The Bremen and Scherk: “concerns of
international comity, respect for the capacities of foreign and
transnational tribunals, and sensitivity to the need of the
international commercial system for predictability in the
resolution of disputes . . . .” Id. at 629 (citing Scherk,
417 U.S. 506). Nonetheless, in dictum, the Court stated 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 the agreement as against public policy.”
27
Id. at 637 n.19. Pointing to this statement, the plaintiffs urge
the same conclusion the Ninth Circuit reached in Richards, 107 F.3d
at 1427, i.e., that the General Undertaking's FS/COL clause should
be condemned here.
We do not read Mitsubishi so broadly. Setting aside the fact
that it is dictum, the quoted statement, by its own terms, is
limited to the antitrust context, as is Mitsubishi more generally.
This circuit expressly has recognized that “'the antitrust
laws of the United States embody a specific congressional purpose
to encourage the bringing of private claims in the American courts
in order that the national policy against monopoly may be
vindicated.'”22 Indeed, it is precisely this “crucial point of
difference” between antitrust suits and other types of actions,
Baumgart v. Fairchild Aircraft Corp., 981 F.2d 824, 829-30 (5th
Cir. 1993), that led us to prohibit f.n.c. dismissals in antitrust
cases while allowing them in others.23 Properly read in conjunction
with ScherkSSa case in which the antiwaiver provisions of the
federal securities laws were directly before the CourtSSthis single
sentence from Mitsubishi cannot be given the sweeping implications
22
Kempe v. Ocean Drilling & Exploration Co., 876 F.2d 1138, 1142-43 (5th Cir.
1989) (quoting Laker Airways Ltd. v. Pan American World Airways, 568 F. Supp. 811,
818 (D.D.C. 1983)).
23
See Industrial Inv. Dev. Corp. v. Mitsui & Co., 671 F.2d 876, 890-91 (5th
Cir. 1982), vacated on other grounds, 460 U.S. 1007 (1983).
28
that the plaintiffs and the Ninth Circuit attribute to it.24
Vimar Seguros, a case involving the enforceability of forum
selection and choice of law clauses under the Carriage of Goods by
Sea Act (“COGSA”), 46 U.S.C. app. § 1300 et seq., is similarly
inapposite. Quoting Mitsubishi, the Court there expressed concern
that the combination of a forum selection clause and a choice of
law clause might deprive the parties of their rights under COGSA,
a uniform system of international rules governing carrier and
shipper liability. Vimar Seguros, 515 U.S. at , 115 S. Ct.
at 2330 (quoting Mitsubishi, 473 U.S. at 637 n.19).
But COGSA, unlike the American securities statutes or the
Texas laws, is “the culmination of a multilateral effort” to
establish such rules, an international scheme the very nature of
which would be frustrated by permitting parties to opt out of it.
Id., 515 U.S. at , 115 S. Ct. at 2328. Because the
enforceability doctrine of The Bremen and Scherk is grounded in the
special needs of parties contracting in international commerce, it
would make little sense to apply it against a statute specifically
designed to foster uniformity in international shipping agreements.
Id. As the Second Circuit has recognized, application of the usual
enforceability rules to COGSA would create an exception that “would
24
Accord Shell, 55 F.3d at 1230-31; Bonny, 3 F.3d at 159-61; Roby,
996 F.2d at 1364 & n.3; Riley, 969 F.2d at 956-57.
29
swallow the whole.” AVC Nederland, 740 F.2d at 160.25
Our judgment is also informed by the fact that the Supreme
Court has never overruled, or indeed even expressly limited, either
The Bremen or Scherk. Quite simply, Scherk rejected the idea that
the antiwaiver provisions of U.S. securities laws bar enforcement
of forum selection clauses in international transactions. As
Scherk is directly on point, we are bound to follow it, regardless
of whether we believe (or, as the case may be, do not believe) that
later decisions have undermined its rationale.26
Haynsworth and Leslie's remaining objections to the
enforcement of the FS/COL clause essentially echo the Ninth
Circuit's view: “The available English remedies are not adequate
substitutes for the firm shields and finely honed swords provided
by American securities law.” Richards, 107 F.3d at 1430. The
American system of securities regulation may be the broadest, most
comprehensive of all. We refuse to accept the notion, however,
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.
The view that every foreign forum's remedies must duplicate
25
Accord Mitsui, 111 F.3d at 34 (enforcing combination forum selection
clause/choice of law clause choosing COGSA as the applicable law).
26
See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477,
484 (1989).
30
those available under American law would render all forum selection
clauses worthless and would severely hinder Americans' ability to
participate in international commerce. We wholeheartedly adopt the
Second Circuit's response to the plaintiffs' contention:
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 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.
Roby, 996 F.2d at 1360 (emphasis in original).27
Careful weighing of these considerations leads us to join the
majority of courts that have considered this issue in concluding
that the antiwaiver provisions of U.S. securities laws do not bar
enforcement of the FS/COL clause. The same reasoning compels an
identical conclusion as to the antiwaiver provisions of the Texas
Securities Act and the DTPA.
As other courts have observed, English law provides a variety
of protections for fraud and misrepresentations in securities
transactions.28 As the Allen court recognized, for example, English
law permits Names to bring “claims based on the tort of deceit,
27
See also Robinson, 117 F.3d at 909 (holding that the substantially greater
scope of discovery under American law does not bar transfer to England on ground of
f.n.c.).
28
See Allen, 94 F.3d at 929; Shell, 55 F.3d at 1231; Bonny, 3 F.3d at 161;
Roby, 996 F.2d at 1365; Riley, 969 F.2d at 958.
31
breach of contract, negligence, and breach of fiduciary duty,” with
possible “injunctive, declaratory, recissionary, and restitutionary
relief.” 94 F.3d at 929 (citing Shell, 55 F.2d at 1230-31).
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. The FS/COL must be enforced, and the plaintiffs as “'rep-
resentative[s] of the American business community'” required to
“'honor [their] bargains.'" Mitsubishi, 473 U.S. at 640 (quoting
Alberto-Culver Co. v. Scherk, 484 F.2d 611, 620 (7th Cir. 1973)
(Stevens, J., dissenting), rev'd, 417 U.S. 506 (1974)). Because
the Leslie district court found otherwise, its judgment is reversed
and remanded with instructions to dismiss. The Haynsworth district
court's judgment of enforceability is affirmed.
IV.
Finally, the Haynsworth plaintiffs claim that the district
court erred in dismissing their claims without permitting
additional discovery and conducting an evidentiary hearing on the
32
issue of whether the FS/COL clause had been procured by fraud. We
find little merit in the discovery claim, particularly given their
halfhearted response to the district court's invitation to submit
“anything they wanted the court to consider.” In large part, the
Haynsworth plaintiffs appear to have relied on the record in
Leslie, a great deal of which has no direct relevance to their
claims.
A party seeking a continuance to conduct discovery must
demonstrate “both why it is currently unable to present evidence
creating a genuine issue of fact and how a continuance would enable
the party to present such evidence.” Liquid Drill, Inc. v. U.S.
Turnkey Exploration, Inc., 48 F.3d 927, 930 (5th Cir. 1995). A
refusal to grant such a continuance is reviewable for abuse of
discretion only. Id. A careful review of the record persuades us
that this standard has not been met, so we find no error.
The plaintiffs fare no better on their claim that Moseley v.
Electronic & Missile Facilities, 374 U.S. 167 (1963), required the
district court to conduct an evidentiary hearing. In Moseley, the
party resisting enforcement of an arbitration clause attacked not
only the overall agreement but also the arbitration clause
specifically, claiming that it had been procured by fraud. Id. at
169. The Court, noting that the allegation of fraud went straight
to the arbitration clause itself, held that that issue must first
be adjudicated at “trial” before the clause could be enforced. Id.
33
at 171. This is entirely consistent, of course, with Prima Paint
and Scherk's requirement that fraud must go specifically to a forum
selection or arbitration clause in order to bar enforcement.
Here, as in Moseley, the plaintiffs claim fraud in the
inducement of the FS/COL clause. As we have explained, however,
nothing in their more specific allegations supports this claim. At
best, what fraud they allege goes only to the 1986 General
Undertaking as a whole. Even reading Moseley literally, to require
a “trial” rather than simply a summary judgment or other proceeding
in which the parties are permitted to submit evidenceSSan
interpretation the validity of which we need not and do not
reachSSthe plaintiffs have not met the threshold requirement that
their claims go specifically to the clause. The district court
properly declined to hold an evidentiary hearing.
V.
Because we find the FS/COL clause of the 1986 General
Undertaking enforceable, we need not consider whether the suits
should also be dismissed on the ground of f.n.c. For the reasons
stated above, we AFFIRM the judgment of dismissal in No. 96-20769
and REVERSE and RENDER a judgment of dismissal in No. 96-20805.
34
Leslie v. Lloyds of London
Combined Opinion