IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
CASE NO.: 3:03 CV 594
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THE SOCIETY OF LLOYDÕS, ) ) Plaintiff, ) ) vs. ) ) GARY NORMAN MICHALOVE, ) JAMES ROBERT PHILLIPS, and ) FRIEDHELM ILSE, ) ) Defendants. ) ) |
ANSWER, COUNTERCLAIMS, AND CLASS ACTION COUNTERCLAIM
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ANSWER
Defendant and Counterclaim Plaintiff, Friedhelm Ilse (ÒDefendantÓ), by his undersigned attorneys, answers the Complaint to recognize and enforce Foreign Country Money Judgment (ÒComplaintÓ), asserts a 23(b)(2) class and asserts a 23(b)(3) class as follows:
1. Upon information and belief, admits that money judgments were entered against Ilse by the English Court and that Equitas Reinsurance Ltd. (ÒEquitasÓ) is an English reinsurance company, denies that the judgments entered by the English Court were for Òpremiums due and owing,Ó denies the Defendant entered into any contracts with Equitas, and denies all remaining allegations contained in Paragraph 1 of the Complaint.
2. Upon information and belief, admits the allegations contained in Paragraph 2 of the Complaint except denies that the assignment by Equitas was valid and states that North CarolinaÕs Foreign Money Judgments Recognition Act, N.C. Gen. Stat. ¤ 1C-1800 et seq., is a statute that speaks for itself.
3. Upon information and belief, Defendant admits the allegations contained in Paragraph 3 of the Complaint, except denies that the Council of LloydÕs was created by a succession of Acts of Parliament.
4. Admits that Defendant is a natural person and was a Name in the LloydÕs market, but denies being a resident of the State of New York. Defendant denies knowledge or information sufficient to form a belief in the truth of the remaining allegations contained in Paragraph 4 of the Complaint.
5. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 5 of the Complaint.
6. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 6 of the Complaint.
7. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 7 of the Complaint.
8. Admits the allegations contained in Paragraph 8 of the Complaint.
9. Upon information and belief, admits that as a condition of membership of LloydÕs each Name entered into certain agreements and the Defendant executed a General Undertaking, avers that the General Undertaking is an agreement in documentary form and, therefore, speaks for itself.
10. Upon information and belief, admits that the General Undertaking is an agreement in documentary form and, therefore, speaks for itself. Denies that, under the circumstances of this case, the provisions governing choice of law and choice of forum apply to Defendant and denies that Defendant remains subject to LloydÕs regulatory authority despite the fact that he has ceased underwriting.
11. Upon information and belief, admits that, under circumstances apparently different from those applicable to Defendant, other courts in the United States have enforced the United Kingdom choice of venue and choice of United Kingdom law as the governing law to be valid and enforceable.
12. Admits that in the 1980Õs and 1990Õs Names in the LloydÕs market incurred enormous aggregate losses and denies knowledge or information sufficient to form a belief in the truth of the remaining allegations contained in Paragraph 12 of the Complaint.
13. Admits the allegation that certain events threatened Òthe continued viability of the LloydÕs market,Ó admits that LloydÕs, on its own, created agreements supposedly binding the Names to LloydÕs and to Equitas and the Reconstruction and Renewal Plan (the ÒR&R PlanÓ) without the consent of many Names, and admits that the R&R Plan, according to the R&R disclosure documents circulated by LloydÕs, provided several different methods for dealing with Names who accepted or rejected the R&R Plan.
14. Admits that Defendant rejected the Settlement offer and refused to pay an amount claimed to be due as his Equitas premium. Denies that the full amount of the Equitas premium was due and owing as of the end of September, 1996. Denies knowledge and information sufficient to form a belief in the truth of the allegation that the defendants have benefited from their reinsurance cover provided by Equitas. Upon information and belief, admits the remaining allegations contained in Paragraph 14 of the Complaint.
15. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 15 of the Complaint, except admits that upon information and belief Equitas assigned to LloydÕs the right to collect Equitas premiums from various Names, including the right to sue in the name of LloydÕs on its own behalf to recover Equitas premiums and denies that assignment by Equitas was valid.
16. Upon information and belief, admits that in 1996 LloydÕs commenced separate actions against various Names, including Friedhelm Ilse, for recovery of Equitas premiums under the R&R Plan, unpaid interest, and costs.
17. Denies the allegations contained in Paragraph 17 of the Complaint.
18. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 18 of the Complaint.
19. Denies the Defendant had a full and fair opportunity to raise defenses in the English action, denies knowledge or information sufficient to form a belief in the truth of the remaining allegations contained in Paragraph 19 of the Complaint.
20. Denies the allegations contained in Paragraph 20 of the Complaint, except admits that in various cases to which Defendant was not a party, English courts made a number of rulings including a ruling that LloydÕs misstated the financial condition of its asbestos reserves when it solicited participation by Names seeking to renew and new Names considering joining. See Jafffray v. Society of LloydÕs, 2002 WL 1654876, at ¦¦ 321, 374-76 (C.A. July 26, 2002).
21. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 21 of the Complaint, except denies that the judgment against Defendant, attached as Exhibit 3 to the Complaint, was properly obtained.
22. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 22 of the Complaint, except denies that the judgments were properly obtained.
23. Denies knowledge or information sufficient to form a belief in the truth of the allegations contained in Paragraph 23 of the Complaint, except denies that the judgments were properly obtained.
24. Denies allegations contained in Paragraph 24 of the Complaint, except denies knowledge or information sufficient to form a belief in the truth of the allegations that no appeal is pending and that interest is accruing.
25. Upon information and belief admits that no judgments other than the invalid judgments alleged in Paragraph 21 of the Complaint are pending between the Defendant and LloydÕs.
26. Admits that Defendant has not entered into any agreement with LloydÕs or anyone else relating to the Equitas Premium and/or the handling and management of the Equitas premiums by the LloydÕs American Trustee or the LloydÕs American Trust Fund (ÒLATFÓ).
27. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-26 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
28. Paragraph 28 states a conclusion of law to which no responsive pleading is required. To the extent that Paragraph 28 may be deemed to contain allegations of material facts, Defendant denies those allegations.
29. Paragraph 29 states a conclusion of law to which no responsive pleading is required.
30. Upon information and belief, admits the allegations contained in Paragraph 30 of the Complaint, except denies that the judgments were properly obtained.
31. Paragraph 31 states a conclusion of law to which no responsive pleading is required.
32. Paragraph 32 states a conclusion of law to which no responsive pleading is required. To the extent that Paragraph 32 may be deemed to contain allegations of material facts, Defendant denies those allegations.
33. Paragraph 33 states a conclusion of law to which no responsive pleading is required.
34. The allegations contained in Paragraph 34 of the Complaint Defendant admits that, under circumstances, pleadings, counterclaims, and defenses other than those asserted by Defendant in this case, some Federal and State Courts have enforced judgments against Names for R&R debt.
35. Paragraph 35 states a conclusion of law to which no responsive pleading is required.
36. The remaining Paragraphs designated A, B, C, D, and E contain prayers for relief to which no responses are required.
DEFENSES
37. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-36 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
38. Defendant, Friedhelm Ilse, asserts the following affirmative defense, some personal, and some on behalf of the members of the proposed class under Federal Rule of Civil Procedure 23(b)(2), discussed further in the following paragraphs.
FIRST AFFIRMATIVE DEFENSE
39. In the early 1980Õs and before, LloydÕs knew that rising asbestos and toxic tort claims were a problem and that syndicate reserves were inadequate.
40. At the same time, in and before 1982, LloydÕs lobbied the U.K. Parliament for new legislation that would allow it to cure its severe financial problems.
41. Parliament granted LloydÕs request by passing the LloydÕs Act 1982 but imposed the condition that LloydÕs give more accurate information to the renewing ÒNamesÓ (the underwriting members of LloydÕs) and to new Names.
42. The condition imposed by Parliament for the legislation was no more than a requirement that LloydÕs tell the truth to the Names considering renewal of their status as underwriting members and to those persons considering the possibility of becoming underwriting members.
43. In practical effect, Parliament required LloydÕs to disclose its past, present, and anticipated liabilities for asbestos use; that it did not, contrary to its prior statements, have Òrigorous accounting controlsÓ and that its prior statements about Òrigorous accounting controlsÓ had been false.
44. When LloydÕs agreed to these conditions, Parliament passed the legislation LloydÕs had requested, restructured LloydÕs, and granted LloydÕs extraordinary rule making and other powers.
45. By this legislation, the LloydÕs Act 1982, the U.K. Parliament delegated legislative power to LloydÕs and to the Council of LloydÕs.
46. A short time after passage of the LloydÕs Act 1982, LloydÕs admitted that it had failed to comply with the condition, and reported to the Parliament about supplying Òbetter quality information,Ó i.e., telling the truth, as follows:
The Council of LloydÕs very much regrets that the undertaking to implement the recommendations . . . within 2 years of the Royal Ascent has not been kept.
The Society of Lloyd's v. Webb, 156 F.Supp.2d 632, 635 (N.D. Tex. 2001).
47. During the five years that LloydÕs failed to improve information disseminated to prospective Names, approximately ten thousand new names joined LloydÕs, most of whom were U.S. investors. Webb, supra, 156 F. Supp.2d at 635.
48. The paragraphs relating to the condition imposed by Parliament, the failure of LloydÕs to comply with the condition, LloydÕs letter to the Parliament confessing non-compliance, and the number of Names recruited in the following years were found against LloydÕs by United States District Judge Jorge Solis sitting in the United States District for the Northern District of Texas in Webb, supra, 156 F. Supp.2d 632 (N.D. Tex. 2001).
49. LloydÕs obligation to give accurate information to the Names considering renewal and to the new Names was a condition precedent to the exercise of the powers granted to LloydÕs and the Council of LloydÕs by the LloydÕs Act 1982.
50. As a consequence, the Council of LloydÕs, which was created by the LloydÕs Act 1982, and all byelaws passed pursuant to the LloydÕs Act 1982 lacked power and effect for failure of the condition.
51. By 1993-94, LloydÕs reserves had become seriously insufficient, primarily due to asbestos claims. In an investigation conducted by the Commissioner of Insurance of the State of New York, the Commissioner found, on the basis of documentation supplied by LloydÕs and accepted as accurate by the Commissioner, that LloydÕs syndicates were under-reserve by as much as 18 billion United States dollars. See Report to the New York Superintendent of Insurance by Supervising Insurance Examiners dated May 11, 1995.
52. Initially, LloydÕs attempted to collect deficiencies in the syndicates insuring against asbestos losses by Òcash callsÓ on the Names that were members of those syndicates.
53. Because those Òcash callsÓ were generally unsuccessful, LloydÕs faced insolvency, bankruptcy, liquidation, and a winding up of its affairs.
54. LloydÕs developed the R&R Plan to address the severe deficiencies in its reserves. The R&R Plan was a program of re-insurance for all liabilities from 1992 and earlier years and was to be administered by Equitas Reinsurance Limited and Equitas Limited.
55. Pursuant to the R&R Plan, any underwriting member who consented to the Plan paid a premium to be used to reinsure all losses in all syndicates for 1992 and the prior years.
56. Most Names, the underwriting members of LloydÕs, accepted the R&R Plan and paid the premium.
57. Approximately one thousand seven hundred (1,700) Names refused to accept the R&R Plan, refused to pay the premiums, and refused to become participants in the R&R Plan.
58. Despite LloydÕs failure to comply with the condition for the passage of the LloydÕs Act 1982, LloydÕs exercised the powers granted under the Act.
59. For example, LloydÕs passed, effective December 6, 1995, Byelaw Number 22, ÒThe Reconstruction and Renewal Byelaw,Ó granting the Council of LloydÕs extraordinary powers including the power to bind the Names as underwriting members to agreements they did not see, review, approve, or accept.
60. The Reconstruction and Renewal Byelaw gave the Council power to Òcarry into effect the scheme forming part of the Reconstruction and Renewal Proposals . . . for the reinsurance by a company formed or to be formed by or with the assistance of The Society.Ó ÒR&R Byelaw,Ó Part C, Paragraph 3, Subdivision (1)(a).
61. The R&R Byelaw also granted the Council power to Òdo all such things as may appear to the Council to be desirable or expedient in connection with preparing and carrying into effect the Equitas scheme. R&R Byelaw, Part C, Paragraph 3, Subdivision (1)(b).
62. The byelaw further authorized the Council to direct Names to assent to the Equitas program and to make them liable for R&R debt. R&R Byelaw, Part C, Paragraph 4, Subdivision 1(a) Ð (d).
63. Over their objection or their refusal to agree to or their failure to agree to the R&R program, the non-participating Names were made Òcontract signatoriesÓ to the R&R program by a substitute agent appointed by LloydÕs.
64. AUA9, the substitute agent appointed by LloydÕs to act for the Names, was a company Òindirectly owned and controlledÓ by LloydÕs.
65. Even though the Names had not agreed to the R&R settlement proposal and the contract, AUA9 committed all non-participating Names to the Equitas re-insurance contract.
66. As a result of the acts by LloydÕs and AUA9, LloydÕs claimed that the non-accepting Names became liable for the R&R debt as well as all future syndicate deficiencies.
67. Acting on behalf of and through LloydÕs, Equitas Reinsurance Limited and Equitas Limited obtained judgments against individual Names for R&R debt in the courts of the United Kingdom.
68. The United States Constitution, Section 10, Article I, provides that no State shall pass any law impairing the ÒObligation of Contracts.Ó
69. The common law and statutory laws of the states of the United States and of the State of North Carolina provide that a party may not be bound to a contract unless he agrees to it and acknowledges his agreement.
70. According to the North Carolina Foreign Money Judgments Recognition Act, at ¤ 1C-1804(b)(3), ÒA foreign judgment shall not be recognized if . . . the cause of action on which the judgment is based is repugnant to the public policy of this state . . ..Ó
71. In this foreign action, LloydÕs seeks to enforce rights against the Names under the R&R contract when the contract rights were created by LloydÕs and rejected or never accepted by the Names.
72. Because Defendant, and other Names, rejected or did not accept the R&R contract, the cause of action resulting in the judgment at issue conflicts with the public policy of the State of North Carolina and the Constitution of the United States of America that a contract cannot be enforced against a party who did not knowingly assent to its terms.
73. For these reasons the foreign money judgment need not be recognized and on the basis of the conduct of LloydÕs alleged in other parts of this Answer, Affirmative Defenses, and Counterclaims, the Court should not recognize it.
SECOND AFFIRMATIVE DEFENSE
74. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-73 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
75. LloydÕs imposed the reinsurance contract obligations on the Names and created the contract rights for itself by various byelaws (including the Reconstruction and Renewal Byelaw) created and passed by LloydÕs.
76. LloydÕs passed the byelaws under statutory authority granted by the Parliament of the United Kingdom in the LloydÕs Act 1982.
77. The relevant byelaws are unenforceable and voidable because LloydÕs failed to satisfy the conditions imposed on it by the Parliament of the United Kingdom in exchange for the legislation granting LloydÕs the power to pass the byelaws.
78. The cause of action resulting in the foreign money judgment obtained by LloydÕs in the courts of the United Kingdom pursuant to the byelaw is, therefore, repugnant to the public policy of the State of North Carolina and should not be recognized.
79. For these reasons the foreign money judgment need not be recognized and on the basis of the conduct of LloydÕs alleged in other parts of this Answer, Affirmative Defenses, and Counterclaims, the Court should not recognize it.
THIRD AFFIRMATIVE DEFENSE
80. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-79 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
81. Because the LloydÕs Act 1982 constituted an unlawful delegation of legislative and governmental power by the Parliament of the United Kingdom to a private business entity, the relevant byelaws passed by LloydÕs under the statutory authority are unenforceable and voidable.
82. The cause of action resulting in the foreign money judgment obtained by LloydÕs in the courts of the United Kingdom pursuant to the byelaw is, therefore, repugnant to the public policy of the State of North Carolina and should not be recognized.
83. For these reasons the foreign money judgment need not be recognized and on the basis of the conduct of LloydÕs alleged in other parts of this Answer, Affirmative Defenses, and Counterclaims, the Court should not recognize it.
FOURTH AFFIRMATIVE DEFENSE
84. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-83 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
85. Equitas executed an assignment of the supposed R&R debt to LloydÕs, Complaint at ¦¦ 2, 20, and was required by U.K. law to pay a duty on the assignment of the debt.
86. Upon information and belief neither LloydÕs nor Equitas paid the duty required by English law upon the transfer of the supposed R&R debt.
87. Because no duty was paid, the transfer of the supposed R&R debt from Equitas to LloydÕs was invalid.
88. Because the transfer of the supposed R&R debt from Equitas to LloydÕs was invalid, LloydÕs does not have standing to enforce the judgments at issue in this case.
FIFTH AFFIRMATIVE DEFENSE
89. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-88 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
90. According to State of North Carolina Foreign Money Judgments Recognition Act, ¤ 1CÐ1804(a)(2), ÒA foreign judgment shall not conclusive if . . . the foreign court did not have personal jurisdiction over the defendant . . ..Ó
91. Defendant Friedhelm Ilse was not served with the Writ of summons, or any other process, in the action in England.
92. The court in England did not have personal jurisdiction over Defendant Friedhelm Ilse.
93. None of the exceptions to the requirement that the court in England have personal jurisdiction over the Defendant apply. Defendant Friedhelm Ilse was not personally served in England, did not voluntarily appear in the proceeding, did not agree to submit to the jurisdiction of the court in England with respect to the subject matter involved in that suit, was not domiciled in England when the suit was brought, did not have a business office in England, and did not operate a motor vehicle or airplane in England.
94. For these reasons the foreign money judgment need not be recognized and on the basis of the conduct of LloydÕs alleged in other parts of this Answer, Affirmative Defenses, and Counterclaims, the Court should not recognize it.
SIXTH AFFIRMATIVE DEFENSE
95. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-94 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
96. According to State of North Carolina Foreign Money Judgments Recognition Act, ¤ 1CÐ1804(b)(1), ÒA foreign judgment shall not be recognized if . . . the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend . . ..Ó
97. Defendant Friedhelm Ilse did not have notice of the English action in a timely manner and, therefore, was not able to defend himself.
98. For these reasons the foreign money judgment need not be recognized and on the basis of the conduct of LloydÕs alleged in other parts of this Answer, Affirmative Defenses, and Counterclaims, the Court should not recognize it.
SEVENTH AFFIRMATIVE DEFENSE
99. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-98 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
100. Plaintiff alleges that the judgment at issue in this action is for Òpremiums due and owing in respect of contracts of reinsurance between each of the Defendant and Equitas Reinsurance Ltd. (ÒEquitasÓ).Ó Complaint at ¦ 1.
101. For the reasons set forth in the Affirmative Defenses and Counterclaims, Defendant claims that the judgment and/or the supposed debt are unenforceable.
102. In the event that this Court finds that the debt is enforceable, the amount alleged by Plaintiff as due and owing is incorrect.
103. Upon information and belief, Defendant was not given certain credits which should have been applied to the amount of debt alleged by Plaintiff.
COUNTERCLAIMS
104. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-103 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
105. LloydÕs is not an insurer but rather a collection of individuals (beginning in 1994, corporations were also allowed to become underwriting members of LloydÕs) who underwrite insurance through groups called syndicates.
106. These individual underwriting members of LloydÕs are usually called Names.
107. Names typically underwrote insurance in more than one syndicate per year and participated in specific syndicates for more than one year.
108. Each syndicate lasted one year. Prior to participating in a new syndicate for a new year, a Name was entitled to full disclosure about the financial condition of LloydÕs and the syndicate for the past year.
109. In 1982 and the years prior to 1982, LloydÕs syndicates insuring against losses sustained from personal injury recoveries based on exposure to asbestos had become insolvent or were rapidly becoming insolvent.
110. LloydÕs accountants told LloydÕs in a letter dated February 8, 1982, that it could not estimate the reserves necessary for the syndicates insuring asbestos losses and that these syndicates were severely underreserved, perhaps by billions of dollars.
111. Between 1982 and 1992 approximately ten thousand Names joined LloydÕs and thousands of Names renewed their memberships.
112. LloydÕs failed to disclose to the prospective new Names and to the old Names considering renewal the extent of the losses suffered by the syndicates insuring against asbestos losses and failed to disclose the financial condition of the syndicates insuring against asbestos losses.
113. Specifically, to conceal the financial condition of the syndicates, LloydÕs concealed the status of the trust accounts in the LATF by using funds from solvent syndicates to pay the losses suffered by insolvent syndicates.
114. In addition, LloydÕs concealed the financial condition of the syndicates by using inadequate accounting and financial controls and failed to disclose and/or misrepresented its inadequate accounting and financial controls for the syndicates.
115. LloydÕs represented Òthat there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted lossesÓ but, in fact, the system did not make any reasonable estimates.
116. The information describing its accounting and financial controls for the syndicates and the LATF trust accounts for the syndicates and the Names given by LloydÕs to the Names considering renewal of their participation as underwriting members and to the prospective Names were found by the Court of Appeals of the House of Lords to be false. Jaffray v. Society of LloydÕs, 2002 WL 1654876, at ¦¦ 321-25, 374-76 (C.A. July 26, 2002).
117. Defendant became a Name and/or renewed his membership during this time period.
118. Defendant would not have become a Name and would not have renewed his membership if he had known about the losses attributable to asbestos claims, the financial condition of the syndicates, or the lack of proper accounting and financial controls for the syndicates.
119. As a result of Plaintiff LloydÕs conduct, Defendant suffered monetary losses.
120. Defendant is entitled to a set-off or recoupment of his losses.
AS AND FOR DEFENDANTÕS
COUNTERCLAIMS AGAINST PLAINTIFF
121. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-120 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
122. Defendant and Counterclaim Plaintiff Friedhelm Ilse asserts the following counterclaims on behalf of himself and on behalf of members of two proposed classes of subclasses, including all other persons similarly situated, pursuant to Federal Rules of Civil Procedure 23(b)(2) and 23(b)(3).
123. The class will consist of all Names who: (1) conducted American business and, therefore, had funds deposited in the LATF, and (2) rejected the R&R program.
CLASS ACTION ALLEGATIONS
Rule 23(a)
124. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-123 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
125. The class is so numerous that joinder of all members is impracticable, i.e., approximately 1,700 Names rejected the R&R program.
126. Although some Names have since settled with LloydÕs, upon information and belief hundreds of the Names who refused to participate in the R&R program have not settled with LloydÕs and are being or will be pursued by LloydÕs for purported R&R debt.
127. All class members present questions of law and fact common to the class.
128. The common questions of law and fact include, but are not necessarily limited to, the following:
(a) whether LloydÕs failed to disclose the extent of the losses due to asbestos and environmental claims;
(b) whether LloydÕs misrepresented the extent of the losses due to asbestos and environmental claims;
(c) whether LloydÕs failed to disclosed the financial condition of the syndicates;
(d) whether LloydÕs misrepresented the financial condition of the syndicates;
(e) whether LloydÕs failed to disclosed its accounting and financial controls for the syndicates;
(f) whether LloydÕs misrepresented its accounting and financial controls for the syndicates;
(g) whether LloydÕs owed a fiduciary duty to the Names;
(h) whether LloydÕs breached a fiduciary duty to the Names;
(i) whether LloydÕs could bind Names to the R&R program despite the Names rejecting or refusing to accept the program; and
(j) whether LloydÕs could bind the Names to the R&R program despite its failure to fulfill the requirements imposed on it by Parliament.
129. Defendant and Counterclaim Plaintiff Friedhelm Ilse was a Name, he conducted American Business governed by LloydÕs American Trust Deed (ÒLATDÓ) and through the LATF, he had funds deposited in the LATF, and he rejected the R&R program.
130. Defendant and Counterclaim Plaintiff Friedhelm IlseÕs claims and defenses are similar to the claims of the other members of the proposed class.
131. Defendant and Counterclaim Plaintiff Friedhelm Ilse suffered the same types of injuries as the other class members.
132. Defendant and Counterclaim Plaintiff Friedhelm Ilse is an adequate representative of the class.
133. Defendant, Counterclaim Plaintiff, and proposed class representative Friedhelm Ilse will fairly and adequately protect the interests of the class.
134. Defendant and Counterclaim Plaintiff Friedhelm Ilse has no interests antagonistic to other members of the class.
135. Defendant and Counterclaim Plaintiff Friedhelm Ilse and the proposed class members possess the same interest in the outcome of this lawsuit and suffered the same injury as other members of the class.
136. Defendant and Counterclaim Plaintiff Friedhelm Ilse is committed to prosecuting this action, has retained competent, experienced counsel, and has no interest adverse to the class.
137. Defendant and Counterclaim PlaintiffÕs counsel have experience in class action cases and will associate experienced class action counsel as necessary.
Rule 23(b)(2)
138. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-139 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
139. Defendant and Counterclaim Plaintiff requests permission of the Court to represent a class seeking solely declaratory and injunctive relief pursuant to Federal Rule of Civil Procedure 23(b)(2) on the ground that LloydÕs has acted on grounds generally applicable to the class making final injunctive relief or corresponding declaratory relief for the class as a whole appropriate.
140. The members of the class have the following characteristics common to all of them:
(1) all members of the class were Names, i.e., underwriting members of The Society of LloydÕs and participants in syndicates insuring, among other things, asbestos losses incurred by the insureds;
(2) all members of the class participated in the insurance syndicates and the insurance policies underwritten by those syndicates through the LATF;
(3) all financial matters involved in this litigation are governed by, among other things, the LATD approved by the Council of LloydÕs on September 3, 1996, as a contract enforceable and binding on all Names;
(4) the LATD provides in Article 19A, Section 19.1, as follows:
The provisions of LloydÕs American Trust
Deed and the rights of all parties in respect of the LloydÕs American Trust Fund (ÒLATFÓ) shall be governed by the laws of the State of New York.
(5) the syndicates underwriting insurance for losses sustained by insureds from personal injury caused by asbestos became insolvent;
(6) on an annual basis, the Names renewed their participation in their syndicates and continued their status as underwriting members of The Society of LloydÕs;
(7) for the Names renewing their participation in syndicates and their status as underwriting members of LloydÕs and for the new Names, LloydÕs failed to disclose that the asbestos syndicates had reserves insufficient by billions of dollars and misrepresented the facts relating to its operations, i.e., it misrepresented that its ÒrigorousÓ accounting controls accurately disclosed the financial condition of the syndicates; and
(8) the existing names and the new Names all relied on LloydÕs representations and were misled by its omissions.
141. The claims and defenses of the proposed representative party for the (b)(2) class, Friedhelm Ilse, are typical of the claims and defenses of the members of the class.
142. Friedhelm Ilse seeks declaratory and injunctive relief on behalf of himself and the proposed (b)(2) class. He seeks a declaratory judgment that the claim cannot be enforced on the basis of the First, Second, Third, Fourth, and Seventh Affirmative Defenses, which are incorporated here as if stated in full. In addition, he seeks an injunction against LloydÕs obtaining or enforcing in the United States or the United Kingdom judgments for the R&R debt.
Rule 23(b)(3)
143. Defendant and Counterclaim Plaintiff incorporates Paragraphs 1-142 of the Answer, Counterclaims, and Class Action Counterclaims with the same force and effect as if set forth here in full.
144. All class members present questions of law and fact common to the class and these questions predominate.
145. The predominating, common questions of law and fact include, but are not necessarily limited to, the following:
(a) whether LloydÕs failed to disclose the extent of the losses due to asbestos and environmental claims;
(b) whether LloydÕs misrepresented the extent of the losses due to asbestos and environmental claims;
(c) whether LloydÕs failed to disclose the financial condition of the syndicates;
(d) whether LloydÕs misrepresented the financial condition of the syndicates;
(e) whether LloydÕs failed to disclose its accounting and financial controls for the syndicates;
(f) whether LloydÕs misrepresented its accounting and financial controls for the syndicates;
(g) whether LloydÕs owed a fiduciary duty to the Names;
(h) whether LloydÕs breached a fiduciary duty to the Names;
(i) whether LloydÕs could bind Names to the R&R program despite the Names rejecting or refusing to accept the program; and
(j) whether LloydÕs could bind the Names to the R&R program despite its failure to fulfill the requirements imposed on it by Parliament.
146. A class action is superior to individual actions.
147. Although each class member has an obvious interest in defending himself or herself against a suit by LloydÕs, each class member does not necessarily have a sufficient interest or the ability to prosecute the counterclaims raised in this case.
148. Litigating the counterclaims against LloydÕs will be time consuming and costly, involve extensive discovery, motion practice and, possibly, a trial. For example, if Counterclaim Plaintiff and every class member were to bring individual counterclaims, each would prove the same acts and omissions to establish LloydÕs liability.
149. LloydÕs has commenced actions against some of the class members and will undoubtedly pursue other class members. A class action relating to the defenses and counterclaims raised in this case will be much more efficient.
150. This Court is an appropriate forum to resolve the class defenses and counterclaims. LloydÕs sued the Counterclaim Plaintiff in this Court and he resides in this jurisdiction.
151. Consolidating the class defenses and counterclaims in one courtÑthis courtÑis superior to separate actions addressing the same issues because of the obvious risk of inconsistent or varying adjudications and the even more obvious waste of judicial time and energy.
152. The proposed classes, or subclasses, in this case present no unusual difficulties in the management of a class action. The Names in this proposed class action have been involved in at least one other class actions against another party.
FACTS
153. Defendant and Counterclaim Plaintiff incorporates all allegations in the Complaint admitted by them with the same force and effect as if set forth here in full and the factual allegations contained in Paragraphs 39-67 and 104-119.
154. In 1982 and the years prior to 1982, LloydÕs syndicates insuring against losses sustained from personal injury recoveries based on exposure to asbestos had become insolvent or were rapidly becoming insolvent.
155. LloydÕs accountants told LloydÕs in a letter dated February 8, 1982, that it could not estimate the reserves necessary for the syndicates insuring asbestos losses and that these syndicates were severely underreserved, perhaps by billions of dollars.
156. Lloyd's did not provide this information to the existing Names or other individuals who became Names during and after this period.
157. For the years of account 1988 through 1992 Lloyd's suffered losses in excess of £8 billion but did not disclose these losses until approximately 1995.
158. The information given by Lloyd's to the Names considering renewal of their participation as underwriting members and to the prospective Names was found by the Court of Appeals of the House of Lords to be false. Jaffray v. Society of Lloyd's, 2002 WL 1654876, at pp. 321-25, 374-76 (C.A. July 26, 2002).
159. As it had for many years and pursuant to the United Kingdom Insurance Companies Act of 1982, Lloyd's deposited all premiums paid in United States currency and handled all claims to be paid in United States currency in the LATF organized under the Lloyd's American Trust LATD.
160. Citibank, N.A., and its predecessors served as trustee for the LATF from its creation in 1939.
161. According to the terms of the LATD and the Lloyd's byelaw creating the Equitas program, the Equitas entities were no more than Lloyd's entities created to serve as a collection agency to obtain reinsurance premiums in order to fund the failed Reinsurance to Close ("RITC") program for the years 1992 and before.
162. For example, the LATD defines the American Trustee for the LATD as the "beneficiary" of the Equitas Trust Agreement (LATD, ¦¦ 1.8 and 1.10) and names the American Trustee as Trustee under the Equitas Trust Agreement (LATD, ¦ 1.10).
163. Equitas Reinsurance Limited and Equitas Limited and the Equitas Trust Fund were no more than superficially separate creations by Lloyd's to assist in the operation of the LATD under the American Trustee for the LATD.
164. The premiums for the R&R reinsurance program were no more than contributions by the Names to the LATF to be managed under the LATD by the American Trustee.
165. In 1995, acting pursuant to the powers granted to by the Lloyd's Act 1982, the Council of Lloyd's unilaterally rewrote the LATD amending and restating the LATD in its entirety.
166. Among the parties to the amended and restated LATD were the Names, the Names' agents for underwriting, the Trustee (ÒAmerican TrusteeÓ), and The Society of Lloyd's.
167. The American Trustee was, as it had been continuously since 1939, Citibank N.A. See LATD, Whereas Clause Nos. 2 and 5. No Name agreed to or signed the 1995 LATD.
168. For the first time, the 1995 version of the LATD contained major provisions incorporating and regulating Equitas Reinsurance Limited, Equitas Limited, and the Equitas Trust Fund.
169. Lloyd's attempted to create the impression that the Equitas entities were independent of Lloyd's, the LATF, and the LATD; but the Equitas entities were in reality, functional parts of the LATF and the LATD and were governed by the LATD.
170. For example, Citibank, the American Trustee, was designated in the definitions of the LATD as the Equitas Trustee (LATD, ¦ 1.10) and as a beneficiary (LATD, Article 4, ¦ 4.2(f)).
171. Additional provisions in the LATD confirmed that the Equitas entities were no more than subparts of the LATF governed by the LATD. For example:
(1) "The American Trustee shall . . . issue a Withdrawal Notice for, and collect from the Equitas Trust Fund, assets in respect of any portion of Equitas Limited Reinsurance obligation that is American business." See LATD, Article 4, ¦ 4.2(C);
(2) "The American Trustee shall, when so directed by the [underwriting member's] Agent immediately issue a Withdrawal Notice for and collect from the Equitas Trust Fund assets necessary . . . to pay a Names' obligation . . ." See LATD, Article 4, ¦ 4.2(D);
(3) The American Trustee is authorized to enter into and perform its obligations under Equitas Trust Agreement as beneficiary thereunderÉ.Ó See LATD, Article 4, ¦ 4.2(F);
(4) ÒNo principle of conflict of interest or any duty of undivided loyalty shall apply to . . . any transactions with or services provided to . . . the Name . . . by the American Trustee in its individual capacity . . . or in its capacity as Trustee of . . . the Equitas Trust Fund . . ." See LATD, Article 4, ¦ 4.5; and
(5) ÒWhere the claim of any policy holder becomes enforceable . . . the expenses of the American Trustee . . . shall be entitled to priority of payment to the extent such enumeration and expenses of the American Trustee . . . do not exceed one percent of the value . . . of principle in income of the LloydÕs American Trust Fund (which shall be deemed to include the principle in income of the Equitas Trust Fund . . . to the extent funds were transferred from the LloydÕs American Trust Fund to the Equitas Trust Fund.Ó
172. The claims against Defendant and Counterclaim Plaintiff arise from deficiencies in syndicates underwriting American Business as defined in the LATF and reinsurance funds available to the LATF through the powers granted by the LATD over the Equitas Trust Fund.
173. Claims for R&R debt asserted in the courts of the United Kingdom by an Equitas entity and later assigned by Equitas to Lloyd's, are merely claims arising from deficiencies in LATF syndicates underwriting American Business governed by the LATD; and all claims for R&R debt arise from and are governed by the LATD.
174. The LATD provides as follows:
The provisions of Lloyd's American Trust Deed and the rights of all parties in respect of the LloydÕs American Trust Fund (ÒLATFÓ) shall be governed by the laws of the State of New York.
FIRST COUNTERCLAIM AGAINST PLAINTIFF
ON BEHALF OF THE RULE 23(b)(3) SUBCLASS
(NEGLIGENT MISREPRESENTATION)
175. Defendant and Counterclaim Plaintiff repeats and realleges Paragraphs 39-67, 104-119, and 153-174 with the same force and effect as if the paragraphs were set forth here in full.
176. Plaintiff and Counterclaim Defendant Lloyd's negligently misrepresented the losses generated by asbestos and environmental claims, the financial condition of the syndicates, and its accounting and financial controls for the syndicates.
As a result of Lloyd's acts, Counterclaim Plaintiff and the other class members are entitled to damages as set forth in this counterclaim.
SECOND COUNTERCLAIM AGAINST PLAINTIFF
ON BEHALF OF THE RULE 23(B)(3) SUBCLASS
(FRAUD)
177. Defendant and Counterclaim Plaintiff repeats and realleges Paragraphs 39-67, 104-119, and 153-174 with the same force and effect as if the paragraphs were set forth here in full.
178. Plaintiff and Counterclaim Defendant Lloyd's fraudulently concealed and/or mis-stated the extent of the losses generated by the asbestos and environmental claims, the financial condition of the syndicates, and its accounting and financial controls for the syndicates.
179. As a result of Lloyd's acts or failure to act, Counterclaim Plaintiff and the other class members are entitled to damages as set forth in this counterclaim.
THIRD COUNTERCLAIM AGAINST PLAINTIFF
(CONSUMER FRAUD)
180. Defendant and Counterclaim Plaintiff repeats and realleges Paragraphs 39-67, 104-119, and 153-174 with the same force and effect as if the paragraphs were set forth here in full.
181. In the 1980's and 1990's Plaintiff and Counterclaim Defendant Lloyd's recruited new Names and re-signed existing Names as underwriting members, including Defendant and Counterclaim Plaintiff and the other members of the proposed class.
182. In its efforts to sign and re-sign Names, Plaintiff and Counterclaim Defendant Lloyd's fraudulently concealed and/or and mis-stated the extent of the losses generated by the asbestos and environmental claims, the financial condition of the syndicates, and its accounting, and the financial controls for the syndicates.
183. Lloyd's acts and omissions were unfair and deceptive trade acts and practices.
184. Defendant and Counterclaim Plaintiff and other class members who signed or re-signed as Names during this time were directly, foreseeably, and proximately injured by Lloyd's acts and omissions.
185. Lloyd's acts and omissions violated New York's Consumer Protection From Deceptive Acts and Practices Act, General Business Law ¤ 349, and similar statutes in effect in other states.
186. As a result of Lloyd's acts or failure to act, Counterclaim Plaintiff and the other class members are entitled to damages as set forth in this counterclaim.
FOURTH COUNTERCLAIM AGAINST PLAINTIFF
(BREACH OF FIDUCIARY DUTY)
187. Defendant and Counterclaim Plaintiff repeats and realleges Paragraphs 39-67, 104-119, and 153-174 with the same force and effect as if the paragraphs were set forth here in full.
188. Plaintiff and Counterclaim Defendant Lloyd's breached its fiduciary duty to Defendant and Counterclaim Plaintiff and others similarly situated by failing to disclose and/or misrepresenting the extent of the losses generated by the asbestos and environmental claims, by failing to disclose and/or misrepresenting the financial condition of the syndicates, and by misrepresenting its accounting and financial controls for the syndicates.
189. As a result of Lloyd's acts or failure to act, Counterclaim Plaintiff and the other class members are entitled to damages as set forth in this counterclaim.
WHEREFORE, Defendant and Counterclaim Plaintiff Friedhelm Ilse demands judgment against Plaintiff and Counterclaim Defendant Lloyd's as follows:
(1) dismissing Plaintiff's Complaint with prejudice;
(2) granting Defendant a set-off or recoupment against Plaintiff based on Plaintiff's misconduct and in an amount equal to losses suffered by Defendant;
(3) declaring this action to be a Rule (b)(2) and (b)(3) class action and certifying Defendant and Counterclaim Plaintiff as the class representatives and his counsel as class counsel;
(4) enjoining Plaintiff and Counterclaim Defendant Lloyd's from enforcing any and all judgments for alleged R&R debt obtained against any and all members of the class;
(5) enjoining Plaintiff and Counterclaim Defendant Lloyd's from prosecuting any action in an effort to obtain a judgment for alleged R&R debt against any and all members of the class;
(6) declaring that the members of the class are entitled to a set-off or recoupment against Plaintiff based on Plaintiff's misconduct and in an amount equal to losses suffered by the members of the class;
(7) awarding damages to the class;
(8) awarding Defendant and Counterclaim Plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of Defendant's and Counterclaim Plaintiff's attorneys and experts;
(9) Defendant and Counterclaim Plaintiff respectfully demands a jury; and
(10) granting Defendant and Counterclaim Plaintiff and the other members of the class any further relief this Court deems just and proper.
This the ____ day of February, 2004.
Robert L. Burchette, State Bar No. 7135
John C. Lindley, III, State Bar No. 31650
JOHNSTON, ALLISON & HORD
Post Office Box 36469
Telephone: 704/332-1181
Attorneys for Defendant Friedhelm Ilse
The undersigned certifies that a copy of Defendant Friedhelm Ilse Answer, Counterclaims, and Class Action Counterclaims were served upon all other parties to this action or their attorneys of record via facsimile and by depositing a copy of same, enclosed in a first class, postpaid wrapper, in a post office or official depository under the exclusive care and custody of the United States Postal Service, addressed as follows:
Robert A. Muckenfuss
Grant D. Goldenberg
Helms, Mulliss & Wicker, PLLC
Post Office Box 31247
Charlotte, North Carolina 28231-1247
Attorney for Plaintiff
Harold J. Bender
Law Office of Harold J. Bender
200 N. McDowell Street
Charlotte, North Carolina 28204
Attorney for Defendants Gary Norman Michalove
And James Robert Phillips
This the _____ day of February, 2004.
_______________________________
John C. Lindley, III
NC State Bar No. 31650
JOHNSTON, ALLISON & HORD
Post Office Box 36469
Charlotte, North Carolina 28236
Telephone: 704/332-1181
Attorney for Defendant Friedhelm Ilse