ARTHUR ALLAN STAMM,
MAUREEN R. OLIVO and PHILIP M. STAMM, Plaintiffs, -against- BARCLAYS BANK OF
NEW YORK, BARCLAYS BANK PLC, and CORPORATION OF LLOYD'S, also known as SOCIETY & COUNCIL OF LLOYD'S, doing business as LLOYD'S OF LONDON, COUNCIL OF LLOYD'S,
COMMITTEE OF LLOYD'S, SEDGWICK LLOYD'S UNDERWRITING AGENTS LTD., and SYNDICATES
0317, 0418 AND 0421 AT LLOYD'S OF LONDON, Defendants.
96 Civ. 5158 (SAS)
UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
960 F. Supp. 724; 1997
U.S. Dist. LEXIS 3633
March 26, 1997, Decided
March 28, 1997, FILED
DISPOSITION:
[**1] Plaintiffs' motion to certify October 23, 1996 Order for
interlocutory appeal denied. Defendants' motion to dismiss granted with leave
to amend.
COUNSEL:
- Appearances -
For Plaintiffs: Mark D.
Lebow, Coudert Brothers, New York, N.Y.
For Defendants: William
A. Meehan, Mendes % Mount, L.L.P., New York, N.Y. Lawrence W. Pollack,
LeBoeuf, Lamb, Greene, & MacRae, L.L.P., New York, N.Y. Philip Walsh,
Wilson, Elser, Moskowitz, Edelman & Dicker, New York, N.Y.
JUDGES: Shira A.
Scheindlin, U.S.D.J.
OPINIONBY: Shira A.
Scheindlin
OPINION:
[*725] OPINION AND ORDER
SHIRA A. SCHEINDLIN,
U.S.D.J.:
Plaintiffs filed the
instant action for common law fraud and violations of Article 22-A of the New
York General Business Law n1 in New York state court on June 26, 1996.
Defendant Lloyd's n2 removed the action to this court on July 9, 1996 pursuant
to 12 U.S.C. ? 632, 9 U.S.C. ?? 203 and 205, 28 U.S.C. ? 1331, 28 U.S.C. ??
1441(a) and (d), and 28 U.S.C. ? 1426. Plaintiff moved to remand to state
court, and I denied this motion in an Opinion and Order dated October 23, 1996.
See Stamm v. Barclays Bank of New York et al., 1996 U.S. Dist. LEXIS 15781, No.
96 Civ. 5158, 1996 WL 614087 (S.D.N.Y. 1996). Plaintiffs now move to certify
the October[**2] 23, 1996 Order for appeal pursuant to 28 U.S.C. ?
1292(b). Defendants also move to dismiss plaintiffs' action pursuant to, inter
alia, Rules 9(b) and 12(b)(3) of the Federal Rules of Civil Procedure
and the doctrine of forum non conveniens. For the reasons that follow,
plaintiffs' motion is denied and defendants' motion is granted.
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- - Footnotes - - - - - - - - - - - - - - -
n1 N.Y. General Business
Law ?? 349 et seq. (McKinney 1988).
n2 "Lloyd's" refers here to defendants Corporation of Lloyd's, Society and Council of Lloyd's, Committee of Lloyd's, and Lloyd's of London.
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End Footnotes- - - - - - - - - - - - - -
I. Factual Background
A. Brief Description of
Lloyd's and "Names"
Lloyd's of London
("Lloyd's") is a market for insurance underwriting. The Council and
Committee of Lloyd's promulgate regulations that govern this insurance
underwriting market, and enforce compliance with those regulations. Syndicates
are entities that compete [*726] with each other for underwriting
business, and are each managed by a Managing Agent. Each Managing Agent is
liable for its own syndicate's[**3] financial well-being, and is
responsible for raising capital and underwriting business. In turn, each
syndicate's capital comes from Names, who are represented in their dealings
with Lloyd's by Member's Agents. Names fall into two categories: Working Names,
who are insiders employed by Lloyd's or the Managing and Member's Agents and
External Names, who are passive investors. See Roby v. Corporation of Lloyd's,
996 F.2d 1353, 1357-8 (2d Cir.) (describing Lloyd's as "a market somewhat
analogous to the New York Stock Exchange" and detailing its structure), cert.
denied, 510 U.S. 945, 126 L. Ed. 2d 333, 114 S. Ct. 385 (1993). See also In re
Lloyd's American Trust Fund Litigation, 928 F. Supp. 333, 335-6 (S.D.N.Y. 1996)
(also describing in detail the structure of Lloyd's "unique and complex
insurance market"). Plaintiffs are External Names.
B. Lloyd's Allegedly
Fraudulent Solicitation of Plaintiffs
Plaintiffs allege that
defendants engaged in a scheme to defraud them by offering and selling
investment contracts in the form of memberships in Lloyd's. It is alleged that,
in recruiting plaintiffs, defendants failed to disclose material information in
connection with investment[**4] in Lloyd's. Specifically,
plaintiffs claim that defendants failed to disclose: (1) exposure to
unquantifiable liability as a result of asbestos and pollution risks
underwritten decades ago and passed on to plaintiffs; (2) joint liability for
the underwriting losses of other investors despite representations that the
plaintiffs were only subject to liability for those risks they agreed to
underwrite; (3) the collection of funds from plaintiffs for undocumented
losses; and (4) exposure to unquantifiable liability for claims that may be
brought at any time in the future. See Plaintiffs' Memorandum in Opposition to
Defendants' Motion to Dismiss ("Plaintiffs' Memo") at 3 (citing
Declaration of Arthur A. Stamm ("Stamm Decl."), dated December 17,
1996 at P 24).
C. The Original General
Undertaking and the New York Collateral
At the time of their
recruitment, plaintiffs signed a series of agreements, including a General
Undertaking Agreement (the "Original Undertaking"). n3 The Original
Undertaking was signed by each plaintiff in New York, and expressly requires
each plaintiff to execute a variety of subordinate agreements, instruments, and
acknowledgments under by-laws adopted by Lloyd's. [**5] See Stamm
Decl. at P 48. The Original Undertaking contained no forum selection or
choice-of-law clauses.
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- - Footnotes - - - - - - - - - - - - - - -
n3 Arthur Stamm signed
the Original Undertaking in 1977, Maureen Olivo signed the Original Undertaking
in 1979, and Philip Stamm signed the Original Undertaking in 1980. See Stamm
Decl. at P 49.
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End Footnotes- - - - - - - - - - - - - -
Plaintiffs were also
required to post collateral in connection with their membership in Lloyd's for
the purpose of meeting potential liabilities. Arthur Stamm deposited with
defendant Barclays Bank of New York 22,516 shares of common stock of Stamm
International Corporation. Maureen Olivo and Philip Stamm posted shares of the
same stock, in the amounts of 10,620 and 10,654, respectively. In turn,
Barclays PLC issued guarantees to Lloyd's in the amount of # 30,000 and #
157,000 for Arthur Stamm; # 157,000 for Maureen Olivo; and # 105,000 for Philip
Stamm. See id. at P 43.
D. The New General
Undertaking
In April of 1986,
Lloyd's sent plaintiffs a new form General Undertaking (the "New
Undertaking") [**6] and informed plaintiffs that they were to
sign the New Undertaking if they wished to continue underwriting at Lloyd's.
See id. at P 50. Plaintiffs allege that if they had chosen to withdraw from
Lloyd's rather than sign the New Undertaking, they would have faced
"substantial" termination costs. Plaintiffs also allege that their
collateral would have been held by Lloyd's after they withdrew and would have
remained encumbered for "years to come". See Plaintiffs' Memo at 8
(citing Stamm Decl. PP54-56). The New Undertaking contains a forum selection
clause n4 (the "FS clause") [*727] requiring all
litigation to be brought in England, and a choice-of-law clause n5 (the
"COL clause") requiring all disputes to be governed by the laws of
England. Each plaintiff signed the New Undertaking.
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- - Footnotes - - - - - - - - - - - - - - -
n4 The forum selection
clause states: "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 [Name's] membership
of and/or underwriting of insurance business at, Lloyd's." See Lloyd's
Memorandum in Support of Motion to Dismiss ("Lloyd's Memo") at 6
(citing Clause 2.2 of the New Undertaking).[**7]
n5 The choice-of-law
clause states: "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." See
Lloyd's Memo at 7 (citing Clause 2.1 of the New Undertaking).
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End Footnotes- - - - - - - - - - - - - -
II. Plaintiffs' Motion to Certify
for Interlocutory
Appeal
A. Applicable Legal
Standard
Section 1292(b) allows
for an appeal from an otherwise unappealable interlocutory order upon consent
of both the District Court and the Court of Appeals. The statute states in
pertinent part:
When a district judge,
in making in a civil action an order not otherwise appealable under this
section, shall be of the opinion that such order involves a controlling
question of law as to which there is substantial ground for difference of
opinion and that an immediate appeal from the order may materially advance the
ultimate termination of the litigation, she shall so state in writing in such
order. The Court of[**8] Appeals . . . may thereupon, in its
discretion, permit an appeal to be taken from such order. . . .
28 U.S.C. ?
1292(b). The Court of Appeals recently examined the legislative history and
purpose of 1292(b) in Koehler v. Bank of Bermuda Ltd., 101 F.3d 863 (2d Cir.
1996), and concluded:
It is a basic tenet of
federal law to delay appellate review until a final judgment has been entered.
Section 1292(b)'s legislative history reveals that although that law was
designed as a means to make an interlocutory appeal available, it is a rare
exception to the final judgment rule that generally prohibits piecemeal
appeals. The use of ? 1292(b) is reserved for those cases where an intermediate
appeal may avoid protracted litigation.
Id. at 865-66
(citations omitted) (also noting that 35 motions for interlocutory appeal were
filed from 1994 through 1995, of which only eight were granted by the Second
Circuit). Hence, in determining whether to certify an interlocutory order for
appeal, a district judge should focus primarily on the question of whether
doing so would preserve judicial resources by avoiding "fruitless"
litigation. Id. at 866 (citing Note, Interlocutory [**9] Appeals in
the Federal Courts Under 28 U.S.C. ? 1292(b), 88 Harv. L. Rev. 607, 609-11
(1975)).
B. Analysis
Plaintiffs cite several
cases to support their argument that this dispute does not arise out of
"international or foreign banking transactions" within the meaning of
12 U.S.C. ? 632, and therefore that remand is appropriate. See, e.g., Bank of
New York v. Bank of America, 861 F. Supp. 225, 232 (S.D.N.Y. 1994) ("a
District Court cannot find that it has ? 632 jurisdiction merely because there
was a federally chartered bank involved, there were banking-related activities,
and there were foreign parties") and Lazard Freres & Co. v. First
National Bank of Maryland, 1991 U.S. Dist. LEXIS 14665, No. 91 Civ. 0628, 1991
WL 221087 (S.D.N.Y. 1991). This argument, however, half-misses the mark. The
October 23, 1996 Order held:
This dispute arises out
of what might also be characterized as "international financial
operations" within the meaning of ? 632. As Judge Sweet wrote, the plain
meaning of the statutory phrase "other international or foreign financial
operations" is international or foreign financial operations other than
banking. See In re Lloyd's American Trust Fund Litigation,[**10]
[928 F. Supp. at 341]. Thus, even if the parties' transactions do not constitute
"international or foreign banking," they undoubtedly
[*728] fall into the general statutory category of "financial
operations".
Stamm, 1996 U.S.
Dist. LEXIS 15781, No. 96 Civ. 5158, 1996 WL 614087, at *2.
Plaintiffs now argue that in Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 791 (2d Cir. 1980), cert. denied, 449 U.S. 1080, 66 L. Ed. 2d 804, 101 S. Ct. 863 (1981), the Court of Appeals rejected the proposition that ? 632 jurisdiction can be based upon non-banking international financial operations. See Plaintiffs' Reply Memorandum in Support of Motion to Certify Order for Appeal ("Plaintiffs' Reply") at 3. I disagree. Vintero Sales did not read the clause "other international or foreign financial operations" out of ? 632. It merely held that intervention by nationally chartered banks cannot serve as a basis for ? 632 jurisdiction. See id. at 792 ("intervention will not be permitted to breathe life into a 'nonexistent' law suit") (quotation and