BEFORE THE ARIZONA CORPORATION COMMISSION
RENZ D. JENNINGS
CARL J. KUNASEK
IN THE MATTER OF THE OFFERING OF ) DOCKET NO. S-3073-1
SECURITIES BY: )
CORPORATION OF LLOYD'S )
a.k.a. SOCIETY OF LLOYD'S, )
a.k.a. LLOYD'S OF LONDON, )
One Lime Street )
London EC3M 7HA ENGLAND )
R.W.STURGE, LTD. F/k/a/ A.L. )
STURGE (Management) LIMITED d/b/a) )
R.W.STURGE & CO. )
Cutler House )
3B Devonshire Square )
London EC2M 4YA ENGLAND )
FALCON AGENCIES LIMITED )
18 Falcon Street )
London EC3R 7JP ENGLAND )
CHARLES PARNELL )
The Manor Farm )
Longwater Road )
Berkshire RG4O 3SE ENGLAND )
STEPHEN WILCOX )
FALCON AGENCIES LIMITED )
18 London Street )
London EC3R 7JP ENGLAND )
RESPONDENTS ) DECISION NO. 59640
OPINION AND ORDER
DATE OF HEARING: March 11, 1996
PLACE OF HEARING: Phoenix, Arizona
PRESIDING OFFICER: Marc E. Stern
APPEARANCES: MARISCAL, WEEKS, MCINTRYE, & FRIEDLANDER, P.A., by Mr. Gary L. Birmbaum and Mr. Michael S. Rubin, on behalf of Corporation of Lloyd's a/k/a Society of Lloyd's a/k/a Lloyd's of London;
STREICH LANG, by Mr. Don P. Martin, on behalf of R. W. Sturge Ltd., f/k/a A.L.Sturge (Management) Limited d/b/a R.W. Sturge and Co., Falcon Agencies Limited, Mr. Charles Parnell and Mr. Stephen Wilcox; and
Mr. Robert A. Zurnoff, Assistant Attorney General, and Ms. Jennifer A. Boucek, Special Assistant Attorney General on behalf of the Securities Division of the Arizona Corporation Commission.
BY THE COMMISSION:
On September 22, 1995, the Securities Division ("Division") of the Arizona Corporation Commission ("Commission") filed a Notice of Opportunity for Hearing ("Notice") naming the Corporation of Lloyd's a/k/a Society of Lloyd's a/k/a Lloyd's of London ("Lloyd's Respondents") and R.W.Sturge, Ltd. f/k/a A.L. Sturge (Management) Limited d/b/a R.W.Sturge & Co., Falcon Agencies Limited, Charles Parnell and Stephen Wilcox ("Sturge Respondents"). Pursuant to law, on September 26, 1995, effective service was made upon the Respondents in England.
On October 5, 1995, counsel for the above-captioned Respondents requested a hearing on the allegations contained in the Notice.
On October 17, 1995, a Stipulation of Continuance was filed with the Commission indicating the agreement of the Division and the Respondents to waive the setting of a hearing date pursuant to A.R.S. §44-1972 while the parties discussed a procedural schedule for the hearing.
On November 17, 1995, the Division and the Respondents filed a Joint Motion for Pre-Hearing Conference ("Motion") in order to schedule briefing and oral arguments on certain issues relating to the exercise of regulatory jurisdiction by the Commission, without prejudice to the Respondents' position that the commission lacks personal and/or subject matter jurisdiction in this matter. The Motion was well taken and was granted.
On December 15, 1995, pursuant to a Commission Procedural order dated November 28, 1995, a pre-Hearing Conference took place at the commission's offices in Phoenix, Arizona. On that date, counsel for the Respondents and the Division agreed to a briefing schedule on the issues with oral arguments to take place on March 11, 1996.
On January 16, 1996, counsel for the Respondents filed what was captioned Pre-hearing Motion to Dismiss or, in the alternative, Motion to Stay Proceedings ("Motion to Dismiss/Stay").
On February 16, 1996, The Division filed its Response to the Motion to Dismiss/Stay.
On February 27, 1996, Messrs. Charles J. Faruki, Paul L Horstman, and Andrew W. Owen filed a Motion for leave to appear Pro Hac Vice on behalf of the Sturge Respondents together with a Notice of Entry of Appearance.
On March 4, 1996, the Lloyd's Respondents joined by the Sturge Respondents filed their Reply.
On March 11, 1996, pursuant to the Pre-Hearing Conference agreement, the Respondents and the Division appeared with counsel for oral arguments on the Motion to Dismiss/Stay before a duly authorized Hearing Officer of the Commission. At the conclusion of the oral arguments the matter was taken under advisement pending submission of a Recommended Opinion and Order to the Commission to resolve the issue of whether the Commission should exercise its discretionary jurisdiction and proceed with the allegations contained within the Notice.
* * * * * * * * * * * * *
Having considered the entire record herein and being fully advised in the premises, the Commission finds, concludes, and orders that:
FINDINGS OF FACT
1. On September 22, 1995, the Division filed a Notice naming the above-mentioned Respondents.
2. Effective service was made upon the Respondents in England on September 26, 1995.
3. On October 5, 1995, the above-captioned Respondents requested a hearing in response to the Notice.
4. The Lloyd's Respondents are represented by local counsel.
5. The Sturge Respondents are represented by an Ohio law firm which has secured local counsel.
6. On November 17, 1995, the Division and the Respondents requested that a Pre-Hearing Conference be set to schedule briefing and oral arguments dealing with issues related to the Commission's exercise of its regulatory jurisdiction arising from the filing of the Notice.
7. On December 15, 1995, at the Pre-Hearing Conference, counsel for the Division and counsel for the Respondents discussed their concerns with regard to certain jurisdictional matters and it was agreed between counsel that certain issues would be initially briefed and argued to the Commission.
8. On January 16, 1996, the Respondents submitted their Motion to Dismiss/Stay.
9. On February 16, 1996, the Division filed its Response to the Motion to Dismiss/Stay.
10. On March 4, 1996, counsel for the Lloyd's Respondents and counsel for the Sturge Respondents joined in the filing of a Reply to the Division's Response.
11. On march 11, 1996, the issues were argued before a duly authorized Hearing Officer of the Commission.
12. The Respondents argued that the Commission should exercise its discretion in proceeding with the prosecution of the case based on the allegations contained in the Notice. The Respondents listed four points in support of their argument.
13. First, the Lloyd's Respondents argued that they are not an insurance company and instead act as a quasi-governmental regulatory body established under English law (the Lloyd's Acts 1871-1982). As such, Lloyd's governs an insurance market in which individual underwriters are engaged in competing for customers who desire insurance coverage. It is also argued that neither Lloyd's nor the Sturge Respondents are presently soliciting individual investors or "Names" in the United States to invest in their insurance ventures.
14. Second, the Respondents argued that the Notice is based primarily on a private dispute involving only 45 Arizona investors and that it is not appropriate for a public regulatory action to be brought on behalf of such a limited number of investors when they have previously agreed, by contract at the time of their initial investment, to a choice of law and forum selection requiring the use of English courts for the resolution of all disputes arising under the investment contracts which are the subject of the Notice herein.
15. In this regard, the Respondents cited a 1994 civil action, initiated in the United States District Court for the Southern District of California, Richards, et al. V. Lloyd's of London, et al., CIV No.94-1211-IEG which included 20 Arizona investors and approximately 500 other American investors. The case was dismissed because in the contractual agreement executed by all the investors, it was agreed that they would bring all claims against the Respondents arising from their investment contracts only in the courts of England and that those contractual promises are enforceable under United States law and in accordance with public policy to respect and enforce such agreements in international transactions.
16. Third, the Respondents argued that the Commission should exercise its discretion in extending its jurisdiction and consider the concept of comity and the fact that an adverse decision by a state regulatory body could have a disruptive affect in the international insurance market and affect individual claimants who are insured under the policies covered by various insurance syndicates under the umbrella of the Lloyd's Respondents.
17. Finally, the Respondents argue that the Commission should not exercise its discretionary power because the Respondents are engaged in the business of insurance, and insurance regulation falls within the jurisdiction of the Arizona Department of Insurance and not that of the Commission pursuant to Article XV, Section 5 of the Arizona Constitution.
18. The Division responded to the Respondents' position by arguing that the Motion to Dismiss/Stay should not be granted because a public administrative enforcement action raises issues of substantial public concern. The fact that the Names or investors have entered into private agreements to seek the redress of any of their grievances through the use of the English court system does not bar an enforcement action since the State of Arizona is not a party to the agreements.
19. The Division further stated that Arizona investors are continuing to suffer financial harm. At the time the Arizona investors entered into their investment agreements, they granted letters of credit which permit the Respondents to continue to draw down on the investors' funds. The Respondents exercised their rights under the letters of credit and continue to draw down the funds.
20. Additionally, the Division pointed out that , although the Respondents have ceased the solicitation of any new individual Arizona investors, solicitation continues existing investors and among corporate investors.
21. According to counsel for the Division, imminent harm may be suffered by Arizona investors if the Commission declines to act because the investors will be "liable up to their last cufflink."
22. Upon our review of the arguments arising from the Respondents' Motion to Dismiss/Stay, it is clear to us that the Notice should be dismissed for any of the reasons raised by the Respondents nor should the prosecution of the proceeding be stayed. It is the Commission's responsibility to the citizen's of the State of Arizona to enforce the provisions of the Arizona Securities Act ("Act"). Clearly, the fact that the Names entered into private agreements with the Respondents whereby they would resolve their disputes in English courts did not contract away our authority to review the allegations raised in the Notice.
CONCLUSIONS OF LAW
1. The Commission has jurisdiction over this matter pursuant to Article XV of the Arizona Constitution and A.R.S. § 44-1801, et seq.
2. The Motion to Dismiss/Stay is not well taken and should be denied. The Commission should proceed with the conduct of this proceeding as intended under the Act since it regulates the manner in which businesses may raise their capital from the public.
IT IS THEREFORE ORDERED that the Respondents' Pre-Hearing Motion to Dismiss or, in the alternative, Motion to Stay Proceedings be, and is hereby, denied.
IT IS FURTHER ORDERED that this Decision shall be become effective immediately.
BY ORDER OF THE ARIZONA CORPORATION COMMISSION
IN WITNESS WHEREOF, I, JAMES MATTHEWS, Executive Secretary of the Arizona Corporation Commission, have hereunto set my hand and caused the official seal of the Commission to be affixed at the Capitol, in the City of Phoenix, this 15th day of May, 1996.
Return to main Litigation page
|Home | Q & A | Regulation | Litigation | News | Fraud
Contact Truth About Lloyd's