Excerpts from:


No. 97-

In The

Supreme Court of the United States

October Term, 1997

Alan Richards, et al.,

John R. Norton, III, et al.,



Lloyd's of London,

An Unincorporated association, et al.,


On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Ninth Circuit

Petition for Writ of Certiorari

Stephen A. Kroft Eugene I. Goldman

Counsel of Record Robert E. Kohn

McDermott, Will & Emery McDermott, Will & Emery

2049 Century Park East 600 13th Street, N.W.

Los Angeles, CA 90067-3208 Washington, D.C. 20005-3096

(310) 277-4110 (202) 756-8000

Counsel for Petitioners


1. Whether courts may create a judge-made exception to the unambiguous anti-waiver provisions of the federal securities statutes in order to enforce contractual forum-selection and choice-of-foreign-law clauses that, in tandem, operate to waive compliance with the federal securities laws by foreign enterprises in connection with their offer and sale of securities in the United States?

2. Whether, quite apart from the securities anti-waiver statutes, public policy permits a foreign party to enforce contractual forum-selection and choice-of-law clauses that prospectively waive the statutory remedies of United States residents for federal securities law and RICO violations committed by the foreign party in the United States?

3. Whether a district court may enforce contractual forum-selection and choice-of-law clauses that a defendant inserted in the contract for the purpose of insulating itself from claims under United States law for its fraud in obtaining millions of dollars of plaintiffs' investment capital?

I. Parties on Petition for Certiorari

A. Petitioners from Richards, et al. v. Lloyd's of London, et al., No. 95-55747 (9th Cir.)

B. Petitioners from Norton, et al. v. Lloyd's of London, et al., No. 95-56467 (9th Cir.)

[Listing of plaintiffs]

C. Respondents

Lloyd's of London, an unincorporated association; Corporation of Lloyd's, a.k.a. Society of Lloyd's, a.k.a. Society and Council of Lloyd's.

II. Additional Parties in the Proceedings Below

A. Parties from Richards, et al. v. Lloyd's of London, et al., No. 95-55747 (9th Cir.)

B. Parties from Norton, et al. v. Lloyd's of London, et al., No. 95-56467 (9th Cir.)

[Listing of plaintiffs]

. . .

Petitioners respectfully petition for a writ of certiorari to review the judgment of the United States Court of Appeals for the Ninth Circuit affirming dismissal of these actions based on contractual forum-selection clauses that, in tandem with choice-of-law clauses waive Petitioners' remedies under the federal securities laws and RICO.


The Ninth Circuit's 8-3 en banc opinion (App. A, 1a-23a) is reported at 135 F.3d 1289. The order staying the appellate mandate (App. B, 24a-25a) is unreported. The Ninth Circuit's divided panel opinion (App. C, 26a-53a), withdrawn by the en banc court is reported at 107 F.3d 1422.

The district court's decision in Richards v. Lloyd's of London (App. D, 54a-75a) is reported at [1995] Fed. Sec. L. Rep. (CCH) ¶ 98,801; [1995] RICO Bus. Disp. Guide ¶ 8839. That court's post-judgment order in Richards (App. E, 76a-83a) and its order in Norton v. Lloyd's of London (App. F, 84a-86a) are unreported.


Section 14 of the Securities Act of 1993 (the "1933 Act") provides:

Any condition, stipulation or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission should be void.

15 U.S.C. § 77n. Section 29(a) of the Securities Exchange Act of 1934 (the "1934 Act") provides:

Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.

15 U.S.C. § 78cc(a).

Sections 5, 7(a), and 12(a) of the 1933 Act are reproduced in Appendix G, 87a-90a. Section 10(b) of the 1934 Act and Rule 10b-5 thereunder are reproduced in Appendix H, 91a-92s. Section 2(1), (7) of the 1933 Act and Section 3(a)(10), (17) of the 1934 Act are reproduced in Appendix J, 94a-96a. The civil remedies section of RICO, 18 U.S.C. § 1964(c), is reproduced in Appendix K, 97a.


The en banc judgment of the United States Court of Appeals for the Ninth Circuit, affirming the district court's dismissal of this case was entered February 3, 1998. This Court has jurisdiction under 28 U.S.C. § 1254(1).


These consolidated cases come to the Court on an undisputed evidentiary record. Petitioners are individual residents of the United States who were solicited —in the United States — to buy passive membership interests on Lloyd's of London an insurance enterprise based in England. Upon becoming members, Petitioners (called "Names" by Lloyd's) were further solicited in the United States to invest in insurance syndicates run by Lloyd's "Managing Agents", placing at risk Petitioners' entire net worth to back any syndicate losses.

Lloyd's did not tell the Names that Lloyd's recruited them in a fraudulent scheme to shift billions of dollars of expected syndicate losses from Lloyd's "insiders" to outside investors like Petitioners. When those losses became imminent in 1986, Lloyd's induced Names to sign "General Undertaking" agreements containing forum-selection and choice-of-law clauses ("Choice Clauses"). See App. A, 3a-4a. Those clauses require Petitioners to sue only in English courts, which would not enforce any Petitioners' right under the United States law.


  1. Lloyd's Fraudulent Offers and Sales of Securities In the United States

Lloyd's solicited Petitioners in the United States to join Lloyd's and its syndicates. See App. A, 8a. "Member's Agents" within Lloyd's, acting at the direction and control of the Society, hosted sales presentations and organized face-to-face meetings in the homeland offices of potential Names – all in the United States. Members' Agents paid commissions and referral fees to recruiters in the United States to solicit new Names. Members' also annually traveled throughout the United States encouraging Names to increase their underwriting in syndicates. In short, "Lloyd's purposefully devoted considerable time and resources to recruiting American investors through specifically American media." En banc dissent, App. 18a. Lloyd's disputed none of those facts.

Petitioners alleged, and to undisputed evidence showed, that their participations in Lloyd's constitute the purchase of "investment contract" "securities" within the meaning of the securities laws. Petitioners invested capital in the Lloyd's enterprise by posting letters of credit and other assets upon joining Lloyd's. Lloyd's assessed levies upon Petitioners for a Central Fund administered by Lloyd's to cover the losses of any Names that failed to satisfy his or her syndicate obligations. Petitioners also invested in the Lloyd's syndicates by pledging to pay any syndicate losses. Lloyd's Managing agents managed every aspect of the syndicates' business; Lloyd's prohibited Names from participating in the operation of the syndicates. Lloyd's did not challenge the Petitioners' securities allegations and evidentiary showing in the district court; on appeal, Lloyd's conceded that the "security" issue was not before the court; and the en banc majority "assume[d] without deciding " that Petitioners in fact did invest in "securities". App. A 7a n.2.

Uncontroverted evidence also shows that Lloyd's committed fraud in connection with offering and sale of its securities in the United States. Lloyd's knowingly failed to disclosed to petitioners that Lloyd's syndicates had reinsured billions of dollars of risks –especially risks of liability for abestos injury and pollution clean up under occurrence-basis liability policies with no aggregate coverage limits. Nevertheless, Lloyd's induced Petitioners to invest in those syndicates and petitioners suffered huge losses. The district court acknowledged that "numerous documents" show Lloyd's had advance knowledge of –but did not disclose to Petitioners- the "massive liabilities" that Petitioners faced before Lloyd's required Names to sign the Choice Clauses. App. D, 68a n.20.

II. The Forum-Selection and Choice-of-Law Clauses

In 1986, when Lloyd's had reason to fear that its syndicates would soon have to disclose very substantial losses –thereby exposing Lloyd's fraud- Lloyd's required Names to execute General Undertakings containing the Choice Clauses. The Society imposed that requirement as a condition of any new participation in Lloyd's syndicates by existing Names, and as a condition membership for all new Names. The choice Clauses purport to require Names to sue only in English courts under English law. Petitioners executed those General Undertakings in the United States.

The effect of the Choice Clauses, if enforced, is certain: in English courts Petitioners cannot assert any claim under the federal securities statutes, RICO or other United States law –even claims that arose before Lloyd's required the Choice Clauses. Moreover, unlike United States courts- which impose liability for intentional and negligent non-disclosure of material facts- English courts will not hold Lloyd's liable for knowingly failing to disclose material facts, on the rationale that Lloyd's owed Names no legal "duty" to speak. See Ashmore v. Corporation of Lloyd's [1992] 2 Lloyd's Rep. 620.


III. Proceedings Below

Petitioners filed two separate suits (Richards and Norton) in the district court for the Southern District of California. Petitioners demonstrated that Lloyd's violated 1933 Act §§ 5, 7(a) by selling its securities without either (a) registering the offerings and making detailed financial disclosure, or (b) complying with an applicable exemption from registration. Petitioners also showed that Lloyd's violated the anti-fraud provision contained in § 12(a)(2) of the 1933 Act, §10(b) of the 1934 Act and SEC Rule 10b-5, and state Blue Sky securities laws.

In addition, Petitioners alleged that the Society's pattern of securities violations in connection with its control of the Unincorporated Association violated RICO. Petitioners also alleged that Lloyd's committed common law fraud and breach of fiduciary duty. Lloyd's never challenged the RICO and fraud allegations; Lloyd's also concedes that Members' Agents owed Names a fiduciary duty of disclosure.

Without answering the complaints, Lloyd's moved to dismiss in reliance the Choice Clauses. The district court granted the motion, despite Petitioners' unrebutted evidence in opposition to the motion. App.D, 60a-74a: App. E, 79a-83a. Petitioners, supported by the Securities and Exchange Commission ("SEC") as amicus curiae, appealed. App. L. 98a.

A divided three-judge Ninth Circuit panel reversed the district court's dismissal of Petitioner's federal securities and RICO claims. App. C, 26a (Noonan, J., with Wiggins, J.). The majority first concluded that the unambiguous federal securities anti-waiver provisions, 1933 Act § 14 and 1934 Act § 29(a), render the Choice Clauses void as to the federal securities claims.

The Choice Clauses operate to effect such waivers. Accordingly, under the precise terms of these two statutes, the Choice Clauses are void.

Id. 33a. The panel further held that quite apart from the anti-waiver statures, the Choice Clauses are "unreasonable" in their impact on Lloyd's securities law obligations, and hence are unenforceable under the standards of M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).

The panel majority also reversed the dismissal of Petitioners' RICO claims It remanded those claims to the district court with instructions to determine whether the Choice Clauses are "reasonable" in their impact on Lloyd's obligations under RICO. App. C, 41a.

The panel unanimously rejected Petitioners assertion that a Lloyd's fraud renders the Choice Clauses unenforceable. App. C. 32a. In so holding, the panel deferred to a purported to a purported "factual finding" by the district court that Petitioners' unrebutted evidence was not "sufficient" to demonstrate fraud in the procurement of the Choice clauses. Id.

On rehearing, the en banc Ninth Circuit acknowledged that the anti-waiver statues "are worded broadly enough to reach this case', but nevertheless withdrew the panel opinion and affirmed the district court ruling, by 8-3 vote. App A, 6a (Goodwin, J.). Relying on Bremen and Scherk v. Alberto-Culver co., 417 U.S. 506 (1974), the court held that forum-selection and choice-of-law clauses in private "international" agreements between United States residents and foreign companies override the congressional mandate unambiguously set forth in the anti-waiver statures. The majority deemed Lloyd's securities offerings "international" in character — and thus exempt from the anti-waiver statutes under the majority's reading of Scherk — because the Names traveled to England for an otherwise trivial meeting as a condition of joining Lloyd's. the majority speculated that "Lloyd's likely requires this precisely so that those who choose to be the Names understand that English law governs the transaction." App. A, 8a. The court concluded that, even though the Choice Clauses operate to waive Petitioners' rights and remedies under the United States securities laws, enforcement of those clauses was reasonable. This is so, said the court, because the remedies available to Petitioners in English courts are "sufficient" substitutes for the remedies and protections of the 1933 and 1934 Acts, App. A, 9a.

The majority enforced the Choice Clauses under Bremen despite the holding in Steward Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988), that Bremen does not control when a statute "itself controls [defendant's] request to give effect to the parties' contractual choice of venue." See App. A, 7an.3. Even though such statutes (the anti-waiver provisions) apply here, the majority declined to follow the reasoning of Stewart is inapplicable because Stewart "involved a federal court sitting in diversity confronted with a purely domestic transaction," id, rather than the type of international transaction involved here.

Having concluded that Bremen, rather than Stewart, governed its decision, the Ninth Circuit confronted the statement in Mitsubishi Motors Corp. V. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), 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.

Id. at 637 n.19. the majority said "[w]ithout question this case would be easier decide if this footnote in Mitsubishi had not been inserted." App. A, 11a. Nevertheless, the court declined to apply Mitsubishi to Petitioners' securities claims, saying that Mitsubishi's language was "dictum" that did "not ...outweigh[ ]" the Court's discussion and purported holding in Scherk, 417 U.S. at 516, 517 n.13. The Ninth circuit also stated that Mitsubishi's rationale was limited to the context of antitrust claims. See App. A., 11a-12a.

Finally, the en banc majority rejected Petitioners' assertion that Lloyd's fraud renders the Choice Clauses unenforceable. Even though Petitioners alleged — and showed— that "Lloyd's knew that the Names were effectively sacrificing valid claims under U.S. law by signing the choice clauses," see App. A, 14a, Lloyd's fraud did not vitiate the Choice Clauses because, in the majority's view, Petitioners fraud claims "go [ ] only to the contract as a whole, with no allegations [of fraud] as to the contract as a whole, with no allegations [of fraud] as to the inclusion of the choice clauses themselves." App. A, 4a. In so holding, the Ninth Circuit acknowledged the Court's statement in Moseley v. Electronic & Missile Facilities 374 U.S. 167 (1963), that "the issue of fraud should first be adjudicated [by the federal district court] before the rights of the parties under [contract] can be determined." Id. at 171, quoted in App. A, 14a-15a. "[T]his statement", the Ninth Circuit agreed, "would seem to support the Names' position." App. A, 15a. Nevertheless, the Ninth Circuit said that, when viewed in procedural "context," Moseley did not apply to Petitioners' fraud assertion because Lloyd's seeks to enforce the Choice Clauses in this case, whereas the defendant in Moseley sought to enforce the arbitration clause in a separate action. App. A, 14a-15a.

The three dissenting en banc judges, agreeing with the two judges in the Ninth circuit panel majority, would have ruled the Choice Clauses unenforceable for two separate reasons. First, the anti-waiver statutes' plain language permits no international exception. App. A, 15a-19a (Thomas, J., dissenting). "The majority espouses a reasonable foreign policy, but one which emanates from the wrong branch of the government." Id. 15a. Second, quite apart from the anti-waiver statutes, the Choice Clauses are unenforceable under the standards of Bremen, Mitsubishi, and Vimar. "Not only do the Choice clauses preclude the plaintiffs from seeking the substantive remedies the Acts offer, but the protections they provide under English law are markedly inferior to the Acts'." 20a. The dissent did not discuss whether fraud precludes enforcement of the Choice Clauses.

Recognizing that the five Ninth Circuit judges who voted to reverse the dismissal raised substantial grounds for disagreement, Judge Goodwin stayed the appellate mandate pending the Court's ruling on this petition. App. B, 24a-25a. See Fed. R. App. P. 41 (b).


I. The Court Has Not Settled the Questions Presented, and Should Address Those Questions Now.

A. The Court's Precedent Leaves Critical Issues Unresolved

The Ninth Circuit's decision presents three integrally related issues that prior decisions of the Court have anticipated but not decided.

First, the court has said —but never held— that the anti-waiver statutes preclude enforcement of forum clauses that, like the Choice Clauses here, effectively waive the substantive rights and remedies guaranteed by the federal securities laws. See Shearson/American Express v. McMahon, 482 U.S. 220, 229-32 (1987); see also Rodriguez de Quijas v. Shearson/American Express, 490 U.S. 482-83 (1989) (enforcing clause that preserved substantive securities rights); Scherk, 417 U.S. at 519 n.13 (same). Nevertheless, the en banc Ninth Circuit interpreted the court's 5-4 decision in Scherk —which enforced a clause the did not effect such a waiver —as permitting enforcement of clauses that do effect waivers. App. A, 7a-8a. Significantly, the SEC strongly disagrees with that view. App. L, 105a-108a. The Chairman of the House Committee on the Judiciary also disagrees with that view:

When foreign promoters come into Illinois and other States to raise capital, they cannot effectuate waivers of substantive rights under the securities laws... Congress has said no and that should be the end of the story.

United States Investors in Lloyd's of London Deserve Their Day in United States Court, 143 Con. Rec. E1607, E1608 (daily ed. Aug. 1., 1997) (Remarks of Rep. Hyde) (approving the panel decision of Judges Noonan and Wiggins in this case).

Courts have no business applying Bremen in place of a clear statute. See Stewart, 487 U.S. at 29, and discussion infra, II. The Court should accept this opportunity to rule directly on the applicability and effect of the securities law anti-waiver provisions, and to complete the line of analysis commenced in Scherk and last visited nearly a decade ago in Rodriguez.

Second, the Court has said —but never held— that a court should not enforce forum-selection clauses when they operate in tandem with choice-of-law clauses when they operate in tandem with choice-of-law clauses to waive federal statutory remedies in non-securities cases. See Mitsubishi, 473 U.S. at 637 n.19 (Clayton Antitrust Act): Vimar, 515 U.S. at 540-41 (COGSA); id. at 541-42 (O"CONNOR, J., concurring in the judgment); id. at 548 n.8 (STEVENS, J., dissenting). The SEC believes that these statements absolutely preclude enforcement of choice clauses that, in tandem, waive the remedies and protections of the federal securities statutes. SEC Br., App. L, 117a-118a, 121a-122a. The Court has never said, however, whether Mitsubishi and Vimar apply to claims under the securities laws.


There is considerable confusion, moreover, in the lower courts as to the meaning and applicability of the court'' statements in Mitsubishi and Vimar. The Ninth Circuit and the Fifth Circuit say, in contrast with the SEC's view, that the statements in Mitsubishi and Vimar only govern choice clauses that waive remedies under the antitrust statutes and COGSA — not securities law remedies. The Second and Seventh Circuits, unlike the Ninth and Fifth, recognize that Mitsubishi does apply to securities claims. Those courts, however, have not interpreted Mitsubishi — as the SEC does (App. L, 117a-118a, 121a-122a) — to prohibit all waivers of statutory remedies. Rather, those courts say that Mitsubishi permits a court to enforce choice clauses that effectuate such waivers if the court concludes that the remedies available in the chosen foreign forum are "adequate" substitutes for United States statutory remedies. (See discussion infra, III). The Court should resolve the confusion among the circuits and make clear that the reasoning of Mitsubishi and Vimar precludes enforcement of choice clauses that waive any substantive feral statutory remedies.

Third, the Court held 35 years ago that a party may avoid a forum-selection clause by showing that inclusion of the clause itself was the product of fraud; a plaintiff can make such a showing by demonstrating that the defendant intended the clause to effect a fraudulent scheme. See Moseley, 374 U.S. at 170-171, followed, Prima Paint Corp. V. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967); see also Scherk 417 U.S. at 519 n.14. The lower courts have not, however, applied Moseley consistently. The Sixth Circuit, following Moseley, has held that a forum-selection clause is unenforceable if the defendant included the clause for the purpose of getting away with an over-arching scheme to defraud. In contrast, the Ninth Circuit here refused to follow Moseley solely because of a procedural nuance in Moseley that the Sixth Circuit did not mention. (See discussion infra, IV). The Court should accept review in this case to resolve the circuit split concerning the scope of Moseley.

B. Resolving The Questions Presented Will Bring Certainty and Predictability to Federal Court Proceedings Far Beyond the Parties and Transactions Involved Here

The foregoing issue "have immediate importance far beyond the particular facts and parties involved" here. Contracts regularly include forum-selection clauses, often in tandem with choice-of-law clauses. Such clauses affect "many American consumers, patients, workers, investors, shopkeepers, shippers, and passengers". The lower courts' repeated enforcement of Lloyd's Choice Clauses, and this court's repeated denial of review (see discussion infra, .A), allows foreign parties to evade liability under United States securities law resulting from transactions with United States residents conducted within United States territory. That is a previously-unprecedented result, and it has drawn much academic attention and criticism.


The SEC observes, moreover, that foreign forum-selection clauses — like Lloyd's clauses— have serious ramifications for enforcement of the securities laws. The Ninth Circuit's holding that such clauses are valid

would allow foreign promoters of securities undertaking large scale selling efforts in the United States to avoid private liability ... even if the remedies available under the foreign law were far less effective than those available under United States law. Such a holding would seriously impair the ability of defrauded investors to obtain compensation for their losses, and would hamper the deterrent function of the federal securities laws by discouraging private actions.

App. L 108a. Indeed, under such a holding,

a clever entrepreneur might even add a conspicuous provision on its Web page that persons placing orders [for securities] with thereby accept a forum selection provision that makes the courts of the host country the exclusive forum in which a private action may be maintained against it.

John C. Coffee, Brave New World? The Impact(s) of the Internet on Modem Securities Regulation, 52 Bus. Law. 1195, 1228 & n.120 (1997) (citations omitted).

The distinction drawn by the Ninth Circuit between wholly domestic transactions, on the one hand, and transnational transactions of the kind at issue here, also has far reaching effect. The large volume and varied forms of modern transnational dealing have blurred distinctions that may have existed in the early 1970's — when Bremen and Scherk were decided— between wholly domestic contracts and predominantly international contracts. Indeed, some lower courts and commentators interpret McMahon as having abandoned any such distinction. See 482 U.S. at 229 (applying, in a purely domestic case, the standard adopted in Scherk, a "truly international" case), The en banc Ninth Circuit's resurrection of that distinction not only injures United States investors and consumers, but also gives sophisticated foreign parties a marked advantage over their United States competitors.

Enforcing the choice clauses gravely disadvantages American businesses, because foreign businesses, like Lloyd's, can recruit investors without expanding the time and money involved in fulfilling the requirements of the Acts— a burden that American businesses cannot legally evade.

En banc dissent App. A, 20a-21a.

II. The Ninth Circuit's Failure to Apply the Anti-waiver Statutes Conflicts with This Court's Precedent

A. This Court's Decisions Preclude a Judge-Made Exception to the Anti-Waiver Statutes

The Ninth Circuit's creation of a judge-made exception to the anti-waiver statutes for international forum-selection clauses clashes directly with th4 holdings of this Court, as conveyed in opinions authored or joined by every current Justice.

Stewart shows that Bremen does not control when a statute itself governs "the immediate issue before the court." Stewart, 487 U.S. at 28. See also id. at 33 (KENNEDY, J., joined by O'CONNOR, J. concurring "in full"); id. (SCALIA, J., dissenting). The Court has consistently followed Stewart's rationale. When faced with an anti-waiver statute in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 595-97 with id. at 590-95; see also id. at 598-605 (STEVENS, J., dissenting). Similarly, in Vimar, the Court said "[t]he relevant question" is whether a forum-selection clause would subject the plaintiff, thereby violates a relevant anti-waiver statute. 515 U.S. at 539; accord id. at 548 n.8. (STEVENS, J., dissenting). The Ninth Circuit erred in disregarding the statutory analysis required by Stewart, Carnival and Vimar. See panel majority, App. C, 38a-39a.

The Ninth Circuit's holding that policy considerations under Bremen trump the clear language of the anti-waiver statutes also conflicts with this Court's decisions refusing to create judicial exceptions to clear legislation in other statuatory contexts. Speaking through Justice SCALIA, the Court recently explained, "[c]ourts may not create their own limitations on legislation, no matter how alluring the policy arguments for doing..." Brogan v. United States, 118 S. Ct. 805, 811-812 (1998). Rather, "we are bound to take Congress at is word" when a statute "implements congress' Policy via a strict, unqualified statutory stricture on waivers." Oubre v. Entergy Operations, Inc., 118 S. Ct. 838, 841 (1998) (maj. op. of KENNEDY, J.) When Congress has enacted clear legislation, "we...give effect to this plain command, even if doing that will reverse the longstanding practice under the statute..." Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 118 S. Ct. 956, 962 (1998) (maj.op. of SOUTER, J.) (citations omitted); see also Connecticut Nat'l Bank Germain, 503 U.S. 249, 253-54 (1992) (maj.op. of THOMAS,J.) (quoted by en banc dissent, App.A. 17a). United States v. Rutherford,442 U.S. 544, 555 (1797) (unanimous op.) (quoted in en banc dissent, App. A, 16a-17a). The en banc dissent recognized the constraint that these holdings impose on the construction of statues by lower courts. App. A, 16a-18a-. The en banc majority disregarded that constraint entirely.

The Ninth Circuit's judge-made exception to the anti-waiver statutes is, moreover, ripe for this Court's review. The Court has previously denied review of several lower court decisions that enforced the Choice Clauses without addressing whether the clear text of the securities anti-waiver provisions voids those clauses. Unlike the en banc majority's decision here, however, those decisions either failed to mention the anti-waiver statutes, or treated those statues as mere expressions of public policy rather than as legislative commands. Those decisions therefore did not address whether Bremen and Scherk trump the anti-waiver statutes for transactions involving an international party – or whether, instead, the reasoning of Stewart controls. Earlier this Term, the Court denied certiorari in another such case. See Haynsworth 21 F.3d at 965-66 (concluding that the Choice Clauses do not "contravene[ ] public policy as embodied in the anti-waiver provisions") (emphasis added). The Haynsworth decision, however, did not even mention Stewart. The Court should review now the Ninth Circuit's judge-made exception to the anti-waiver statutes for international transactions.

B. The Ninth Circuit's Refusal to Enforce the Anti-Waiver Statutes Conflicts with This Court's Decisions in McMahon and Rodriguez, and Misapplies Scherk

In refusing to hold Lloyd's Choice Clauses void under the anti-waiver statutes, the Ninth Circuit said that Bremen "contemplated" that, in international transactions. " a forum selection clause may conflict with the relevant statutes". App. A, 7a. Further, according to the Ninth Circuit, Scherk left "little doubt" that Bremen, rather that the anti-waiver statutes, governs enforceability of forum-selection clauses in international transactions. Id. 7a. The Ninth Circuit's holding conflicts squarely with McMahon and Rodriguez, and misapplies Scherk.

The Ninth Circuit's reliance on Scherk conflicts with Mc Mahon and Rodriguez in two critical ways. First, the Ninth Circuit's interpretation of Scherk is completely at odds with McMahon's explanation of Scherk's holding, and with the Court's subsequent interpretation of the anti-waiver statutes in Rodriguez. In McMahon, Justice O'CONNOR explained to the Court that Scherk upheld an arbitration clause in an international transaction because –and only because- the foreign arbitral forum provided an adequate means of enforcing the parties' substantive rights under the 1934 Act:

The decision in Scherk thus turned on the Court's judgment that under the circumstances of that case, arbitration was an adequate substitute for adjudication as a mean of enforcing the parties' statutory rights.

McMahon, 482 U.S. at 229 (emphasis added). Based on that explanation of Scherk, the Court construed the 1934 Act anti-waiver provision to permit arbitration clauses in domestic transactions because (and only because) such clauses preserve substantive statutory rights. McMahon, 482 U.S. at 229-32. Rodriguez further explained that the anti-waivers of "substantive" securities provision, "such as the provision [in 1933 Act § 12(a)(2)] placing on the seller the burden of proving lack of scienter when a buyer alleges fraud." Rodiguez, 490 U.S. at 481.

McMahon and Rodriguez preclude enforcement of Lloyd's Choice Clauses precisely because those clauses do not preserve Petitioners' substantive rights under § 12(a)(2). The SEC as amicus curiae in the court below agreed. App. L, 112a-114a. The Ninth Circuit did not even mention McMahon, or the SEC's assertion that McMahon's construction of the anti-waiver statutes controls here. In direct conflict with McMahon and the SEC's clearly expressed views, the Ninth Circuit's decision to enforce the Choice Clauses wipes out Petitioners' claim.

Second, the Ninth Circuit's reliance on the Names' travel to England –which supposedly demonstrates "understand[ing]" by the Names that English law would control (App. A, 8a)- conflicts with McMahon's unequivocal statement that the anti-waiver provisions preclude all waivers, regardless of how voluntary the waivers might be:

[the] voluntariness of the agreement is irrelevant to this inquiry: of a stipulation waives compliance with a statutory duty, it is void under [1934 Act § 29(a)], whether voluntary or not.

482 U.S. at 230; see also Rodriguez, 490 U.S. at 482. Under McMahon and Rodriguez, the Names' purported voluntary "understand[ing]" that the Choice Clauses required English law is irrelevant. See SEC Br., App. L, 113a.

Not only did the Ninth Circuit wrongly ignore McMahon but it impermissibly extended the rationale of Scherk –which only applies to "truly international," agreements, 417 U.S. at 515- to predominantly domestic transaction with foreign parties. The "truly international" transaction in Schek involved an American corporation that expanded its overseas operations by (1) seeking out the seller of a business in Germany, (2) engaging foreign counsel and consultants to represent it in purchasing that business, end (3) negotiating in several different countries before singing a deal in Austria and closing in Switzerland. See 417 U.S. at 508-09, 515. This case is different. Indeed,

the Schek majority itself recognized that a contract with "insignificant or attenuated" contacts with foreign countries might well prompt a refusal to enforce a forum selection clause, let alone a clause choosing foreign law. Schek, 417 U.S. at 517 n.11. The Court observed: "Judicial response to such situations can and should await future litigation in concrete cases." Id.

En banc dissent, App. A, 19a. Because this case involves only a trivial overseas meeting, "[t]he instant case offers just such a concrete opportunity..." App. A, 19a. The Lloyd's securities offerings were no more international in character that any other United States securities transaction involving a foreign seller with global operations.

III. The Lower Courts Misunderstand This Court's Public Policy Standards for Enforcing Forum-Selection Clauses under Bremen, As Explained By Mitsubishi and Vimar

The Ninth Circuit held that public policy permits enforcement of choice clauses that waive federal statutory remedies, so long as the remedies afforded by the foreign court are deemed "sufficient.} App. A, 9a. This approach conflicts with Bremen, as explained by Mitsubishi, 473 U.S. at 637 n.19 (stating that Court would "condemn[ ]" choices clauses that, in tandem, waive statutory remedies), quoted with approval, Vimar, 515 U.S. at 540. The Ninth Circuit's refusal to follow Mitsubishi –together with decisions from other circuits- demonstrates, moreover, that the lower courts completely misunderstand how to apply Bremen's policy analysis.

The en banc majority declined to apply Mitsubishi's rationale –which the majority believed was "dictum... regarding antitrust law"- to the securities claims in this case, because the majority wrongly believed that Scherk compels enforcement of the Choice Clauses notwithstanding Mitsubishi. App. A, 11a-12a. According to the Ninth Circuit, Scherk's enforcement of a clause requiring foreign arbitration of a 1934 Act claim, based on Bremen, means that the anti-waiver statutes do not apply to forum-selection clauses, even the foreign forum would not enforce the United States securities laws –for example, due to a foreign choice-of-law clause. This is so, said the Ninth Circuit, because Scherk "never suggested" that a foreign choice-of-law clause affects the validity of a forum-selection clause. App. A, 12a.

By relying on Scherk's failure to address foreign choice-of-law clauses, the Ninth Circuit extended Scherk's holding far beyond the issue decided in that case. Scherk's failure to address foreign choice-of-law clauses stems not from any opinion that such clauses are irrelevant under the anti-waiver statutes, but rather from the fact that the contract in Scherk selected United States law, specifically the law of "Illinois, U.S.A." 417 U.S. at 508 n.1, 519 n.13. See en banc dissent, App. A, 18a. Thus, nothing in Scherk precludes applying Mitsubishi's rationale to statutory federal securities remedies.

The Second and Seventh Circuits, moreover, disagree with the Ninth Circuit's conclusion that Scherk limits Mitsubishi. The Second and Seventh Circuits have both held that the Mitsubishi rationale does apply to securities law remedies –notwithstanding Scherk. "Scherk, decided eleven years before Mitsubishi, is not to the contrary." Roby, 996 F. 2d at 1364 n.3; see also Bonny, 3 F.3d at 160 (applying Mitsubishi).

Even though the Second and Seventh Circuits recognize that Mitsubishi applies to securities remedies, those courts nevertheless improperly interpret Mitsubishi. Mitsubishi and Vimar straightforwardly preclude enforcing choice clauses that waive statutory remedies. Both the Second and Seventh Circuits belive, however, that Mitsubishi permits enforcement of a forum-selection clause that available foreign remedies are "adequate" to implement the policies that underlie the United States statute. See Roby, 996 F.2d at 1364 n.3; see also Bonny, 3 F.3d at 160 (applying Mitsubishi). That is the same comparative law balancing that the Ninth Circuit incorrectly employed in attempting to apply Bremen and Scherk in this case. By undertaking that difficult endeavor, the lower courts appropriated more judicial policy-making authority than Mitsubishi and Vimar permit, "in essence supplant[ing] their policy views of what laws are sufficient to protect United States investors for the determination made by Congress." SEC Br., App. L, 122a. The courts' ill-equipped attempts at such a quasi-legislative comparative balancing has, moreover, led the courts into faulty reasoning and erroneous results.

IV. The Ninth Circuit's Fraud Holding Conflicts With This Court's Moseley Decision, And With The Application of Moseley By the Sixth Circuit

The Ninth Circuit incorrectly enforced the Choice Clauses despite the undisputed evidence of Lloyd's fraud. In doing so, the court erroneously refused to follow Moseley — in direct conflict with the Sixth Circuit's adherence to Moseley in CBS Employees, 912 F.2d at 1568.;

To invalidate a forum-selection clause based on fraud, a plaintiff must show fraud in the inducement of the clause itself, not merely fraud in connection with the contract generally. App. A, 14a (citing Prima Paint, 388U.S. at 403-04; Scherk, 417 U.S. at 519 n.14). Moseley held that fraud "goes to the arbitration clause itself" when, as in this case, "the insertion in the subcontracts of an arbitration clause" was "[o]ne of the means used to effect [the fraudulent] scheme". 374 U.S. at 171, cited in Prima Paint, 388 U.S. at 404 n.12 (construing the Federal Arbitration Act in a manner "consistent... with the decision in Moseley...").

Petitioners' unrebutted evidence demonstrates the type of fraud that voids forum-selection clauses under Moseley. Lloyd's knew its conduct violated United States law before it required Names to sign the Choice Clauses. App. A, 14a. Lloyd's knew that it had concealed the fact that it had saddled United states investors with billions of dollars of losses from asbestos and pollution liability risks — in violation of the federal and state securities laws and state common laws- and that losses from theses risks would soon become known. Lloyd's therefore had reason to fear that American Names would seek relief against Lloyd's under United States courts when the Names began to realize these asbestos and pollution liability losses. Lloyd's induced Names' claims against Lloyd's under American law –the clauses would strop Names of their United States law remedies. (See discussion supra, 5). That circumstantial evidence establishes that Lloyd's adopted the Choice Clauses to further a fraudulent scheme.

The Ninth Circuit did not hold that Petitioners failed to show fraud of the type alleged in Moseley. Instead, the court incorrectly held that such a showing is insufficient as a matter of law. The Ninth Circuit first held that Lloyd's fraud is legally insufficient to defeat the Choice Clauses because that fraud "go[es] only to the contract as a whole,' rather than to the Ninth Circuit, because "[t]he Names never allege...that Lloyd's misled them as to the legal effect of the choice clauses [or that] Lloyd's fraudulently inserted the clauses without evidence showing that a forum-selection clause was intended to effectuate a fraudulent scheme –like Petitioners' unrebutted evidence here- does go to the validity of the clause itself, as a matter of law. 374 U.S. at 170-71. And, Moseley did not require allegations or evidence of deception as to the existence or legal effect of the clause.

Second, the Ninth Circuit attempted to distinguish Moseley on the basis of differences between the procedural posture in Moseley and the procedural posture here. App. A, 14a-15a. According to the Ninth Circuit, Moseley does not apply when a plaintiff seeks to invalidate a forum-selection clause in the same action where the defendant seeks to enforce the clause. App. A., 15a. Moseley is distinguishable, said the Ninth Circuit, because "[h]ere Lloyd's has clearly and vigorously called for the enforcement of the choice clauses," id., whereas the defendant in Moseley sought to enforce the clause in a separate action from the plaintiff's action challenging the clause. 374 U.S. at 170. But Moseley placed no reliance on the procedural posture. As the Court later explained in a slightly different procedural context, "it is inconceivable that Congress intended the rule to differ depending upon which party to the arbitration agreement first invokes the assistance of a federal court." Prima Paint, 88 U.S. at 404.

The Ninth Circuit's holding also conflicts with the Sixth Circuit's holding and CBS Employees. Following Moseley, the Sixth Circuit held:

Where, as here, the plaintiff affirmatively pleads that the contract and the arbitration agreement...were procured through fraud, the court should determine whether the arbitration clause was used to further the fraudulent scheme.

912 F.2d at 1568 (citing Moseley and Prima Paint). Unlike the Ninth Circuit, CBS Employees did not require allegations or evidence of deception as to the existence or legal effect of the clause. And the Sixth Circuit applied Moseley's central holding even though the CBS Employees plaintiff raised its challenge to the clause in the same proceeding where defendant tried to enforce that clause. See 912 F.2d at 1565.


The Petition for Writ of Certiorari should be granted.

Respectfully submitted,


Counsel of Record for Petitioners



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