1993 WL 662352 (S.D.Ohio)

United States District Court, S.D. Ohio, Western Division.

George R. BAKER, et al., Plaintiffs, v. LeBOEUF, LAMB, LEIBY AND MacRAE, et. al., Defendants.

No. C-1-92-718.

Oct. 7, 1993.

COUNSEL: Donald John Rafferty, Cohen, Todd, Kite & Stanford, Louise Malbin Roselle, Stanley Morris Chesley, Waite, Schneider, Bayless & Chesley, Cincinnati, OH, for plaintiffs.

Robert George Stachler, Taft, Stettinius & Hollister, Cincinnati, OH, for defendants.

REPORT AND RECOMMENDATION

UDGE: STEINBERG, United States Magistrate Judge.

[*1] This case is before the Court upon defendants’ motion to dismiss amended complaint (Doc. 4), reply (Doc. 13), supplemental memorandum (Doc. 29), summary (Doc. 39), evidentiary submission (Doc. 40), and notices of affirmances (Doc. 40, Ex. 2; Doc. 40, Ex. 3; Doc. 42); and upon plaintiffs’ memorandum (Doc. 11), notice of intention to rely on additional evidence (Doc. 19), post-hearing memorandum (Doc. 30), evidentiary submission (Doc. 41), and response to defendants’ notice of affirmance (Doc. 41, Ex. 33).

Plaintiffs, underwriting members or “Names” of the Society of Lloyd’s , also known as Lloyd’s of London (Lloyd’s ), bring this diversity action against the law firm LeBoeuf, Lamb, Leiby & MacRae (LeBoeuf) and several of its partners alleging breach of fiduciary duties, negligent representation, and legal malpractice. Plaintiffs allege that LeBoeuf, as United States counsel to Lloyd’s as well as counsel to plaintiffs, failed to disclose certain material information to plaintiffs regarding the status of their investments with Lloyd’s and failed to disclose its conflict of interest resulting from representing both Lloyd’s and plaintiffs. Plaintiffs have demanded compensatory damages, punitive damages, and attorneys’ fees.

In their motion to dismiss for lack of jurisdiction, defendants allege that the forum selection clauses in the General Undertaking entered into between plaintiffs and Lloyd’s is enforceable because defendants are either direct or intended beneficiaries of the clauses. That clause grants exclusive jurisdiction to the courts of England over disputes arising out of or relating to the Names’ membership at Lloyd’s and deprives this Court of jurisdiction. Defendants allege that plaintiffs’ present lawsuit is a “sham” and one actually directed against Lloyd’s. They claim plaintiffs named the present defendants to avoid the forum selection clauses. Defendants assert there was no attorney-client relationship between the parties and, even if there was, it arose entirely from plaintiffs’ membership in Lloyd’s and is subject to the General Undertaking. Lastly, defendants allege that plaintiffs cannot show that a trial in England would be so gravely difficult and inconvenient that plaintiffs would for all practical purposes be deprived of their day in court. Some issues raised in defendants’ initial motion to dismiss (Doc. 4) have been resolved and some issues have been clarified as reflected in defendants’ summary. (Doc. 39).

Plaintiffs allege that defendants’ motion is not properly supported by authenticated documents. They claim that defendants are strangers to the General Undertaking and as such, are not its beneficiaries. Plaintiffs assert that defendants are plaintiffs’ fiduciaries and/or attorneys and that allowing defendants to enforce the forum selection clauses against their own clients in a malpractice action involving fraud and grossly negligent misconduct would be unreasonable, unjust, and contrary to public policy.

BACKGROUND FN1

[*2] Lloyd’s of London is not an insurance company. It is an insurance marketplace in which over 30,000 underwriters conduct the insurance underwriting business. It began in 1688, when Edward Lloyd’s coffeehouse in London became a gathering place for marine underwriters and shipowners wishing to insure their vessels and cargoes. Because it was often not economical for an underwriter to assume 100% of a particular risk, a practice of joining to assume parts of a single risk was developed. As a result, a society of underwriters was created and became known collectively as Lloyd’s of London or the Society of Lloyd’s.

In the mid-1800’s , the society of underwriters expanded beyond marine insurance. The Corporation of Lloyd’s was created by an Act of Parliament to regulate Lloyd’s insurance market. Lloyd’s underwriters began insuring U.S. risks at least by 1892. By 1900, Lloyd’s had evolved into a sophisticated insurance market. During the early 1900’s , regulation of the Lloyd’s market rapidly increased to ensure payment of liabilities and protection of policyholders. A 1909 Assurance Companies Act required new members to produce certificates of solvency, as well as making substantial deposits to a trust fund in order to qualify as a Lloyd’s underwriter. In 1939, the Lloyd’s American Trust Fund, maintained by Citibank, was established. Today, the assets of this fund exceed eight billion dollars.

Originally, Lloyd’s underwriting groups or syndicates tended to be small. In 1856, most syndicates had no more than three members. By 1952, 16 syndicates had 100 or more members. By 1988, there were 376 syndicates, some of which included more than 1,000 members.

Currently, the Corporation of Lloyd’s provides facilities and services to assist underwriters in carrying on their business. The Corporation itself does not underwrite any insurance. It’s affairs are managed by the Council of Lloyd’s , created by the Lloyd’s Act of 1982. The Council controls the admission and discipline of members; sets the members’ reserve requirements, fees and deposits; provides central accounting, claims adjustment, collections and other services; sets restrictions on and standards for brokers, managing agents, and underwriters, and reviews and processes all policies.

To obtain insurance with Lloyd’s , a potential insured must contact a broker in London who is authorized to place business at Lloyd’s or contact a broker outside London to whom, through an authorized London broker, certain Lloyd’s underwriters have given written binding authority.

To be eligible to underwrite insurance at Lloyd’s , one must apply and be sponsored by an existing member. Applicants must satisfy a “means” or net worth test to demonstrate that they possesses sufficient assets to satisfy possible claims and to provide a basis for setting their premium limit. The members, or “Names” as they have become known over the years, have a continuing duty to notify Lloyd’s of any material change that affects their declared means. New Names pay a nonrefundable entrance fee and an annual fee that is used to meet the expenses of the Corporation of Lloyd’s. The Names must also make certain deposits-the amount of the deposit as well as the Names’ means determines the premium limit for particular members.

[*3] Each Name selects a Members’ Agent, who assists in the application process and advises on the available syndicates. The Members’ Agent aids the Name in selecting one or more Managing Agents. The Managing Agent directs the operation of one or more syndicates. Through agency agreements, the Names grant authority for underwriting activities to be conducted on their behalf. Names cannot conduct their insurance business directly. It is typical for a Name to join a number of syndicates in order to spread risks.

British law requires that all premiums received by underwriters and all investment income earned on premiums be placed initially in premiums trust funds, which are used to pay claims and underwriting expenses. Members’ Agents control all reserves and premium trusts, subject to guidelines established by the Council of Lloyd’s. Profits are released to underwriters only after a three year accounting period required by British law is concluded. This is usually accomplished by transferring the entire portfolio to a reconstituted syndicate by means of reinsurance.

Investment of premiums and investment income is controlled by Members’ Agents under guidelines set by the Council of Lloyd’s. Members’ Agents also authorize all releases of funds to pay claims, expenses, reinsurance, or Names’ net profits.

The New York law firm of Mendes & Mount, and its predecessor firms, had been United States General Counsel to the Society of Lloyd’s , the Committee of Lloyd’s (subsequently the Council of Lloyd’s ), and the Corporation of Lloyd’s since at least the 1930’s. Mendes & Mount also routinely defended claims and handled other matters for particular Lloyd’s underwriters. In 1965, a number of Mendes & Mount attorneys responsible for Lloyd’s General Counsel work joined LeBoeuf, Lamb, Leiby & MacRae. An arrangement was made whereby LeBoeuf assumed the role of United States General Counsel and Mendes & Mount continued to perform claims defense work. LeBoeuf agreed with the Committee of Lloyd’s that it would not represent any underwriter individually without first ascertaining there was no conflict of interest between the underwriters and the interests of the Society, the Corporation, or the Committee of Lloyd’s , and without first obtaining the Committee’s permission. That understanding remains today.

Prior to 1968, certain United States-connected income to all Names was taxed pursuant to the Internal Revenue Code. Pursuant to a treaty between the United States and the United Kingdom (U.K.), changes in tax treatment caused uncertainty on the part of Lloyd’s. Therefore, Lloyd’s attorneys, acting on behalf of the underwriters, requested IRS rulings in late 1966. Negotiations between the IRS and Lloyd’s then began and resulted in a 1968 Closing Agreement. Under that agreement, Lloyd’s underwriters agreed to be taxed as if they conducted their U.S. situs business through a permanent establishment located in the U.S. and they agreed on rules to determine what income would be attributable thereto. At that point in time, the majority of the 6,000 underwriters were British and few if any were U.S. citizens or residents. The tax treatment accorded Lloyd’s underwriters under the 1968 agreement did not result in a significant change in taxes due.

[*4] The 1968 Closing Agreement was renegotiated in 1980 due to uncertainty caused by the language of the U.S. 1976 Tax Reform Act, a proposed amendment to the U.S.-U.K. tax treaty, the addition of U.S. residents and citizens as members of Lloyd’s , and other factors. Under the 1980 Closing Agreement, the Names, both U.S. and non-U.S., were taxed as individuals and deemed to have a permanent establishment in the U.S., meaning that underwriting and investment income would be taxed on a net basis and that there would be only one level of U.S. tax imposed. Agreements were also made as to U.S. source investment income, underwriting profits and losses, source rules, and reinsurance.

Sometime prior to 1987, a U.S.-based insurance exchange organized under Texas laws and patterned after Lloyd’s urged revision of the 1980 Closing Agreement on the ground that it provided Lloyd’s underwriters a competitive advantage. While Lloyd’s Names were taxed only once under the 1980 Closing Agreement, the Texas insurance exchange’s investors were subject to two levels of taxation on their insurance income: corporate tax treatment under Subchapter L and taxation at the shareholder level on net profits. They either wanted to be taxed only once, like the Lloyd’s Names, or wanted the Lloyd’s Names to be subjected to two levels of tax.

LeBoeuf played a major role in the negotiation of the 1990 Closing Agreement. IRS rules prohibited Lloyd’s from signing the 1990 Closing Agreement on behalf of the Names. For this reason, Lloyd’s required the Names to execute limited powers of attorney to certain LeBoeuf attorneys allowing them to execute the 1990 Closing Agreement on the Names’ behalf. (Doc. 40, Tab 5, Aff. of Attorney Jeffrey Mace, p. 5). Plaintiffs contend that defendants represented them with regard to the 1990 Closing Agreement and that the 1990 Closing Agreement is extremely detrimental to them because it substantially increases their tax burden. (Doc. 1). They contend that defendants are liable to them under legal theories of breach of fiduciary duty, negligent representation, and legal malpractice. (Id.). They allege that defendants failed to disclose the 1990 Closing Agreement terms at the earliest possible date; that defendants deliberately or negligently concealed a Price Waterhouse study which projected substantial losses for Lloyd’s in 1988, 1989 and 1990; and that defendants failed to disclose the existence of an actual or potential conflict of interest when it first became aware that the interests of the U.S. Names and non-U.S. Names were not aligned under the 1990 Closing Agreement, which they were in the process of negotiating. (Id.).

The Lloyd’s Forum Selection Clauses Are Valid

As a condition to becoming a Name at Lloyd’s , each plaintiff signed a two page General Undertaking, with a representative of the Society of Lloyd’s as the other signatory. In paragraph 1.1 of the General Undertaking, each plaintiff agreed to comply with all provisions imposed upon them by the Council. The General Undertaking also contains choice of law and choice of forum clauses as follows:

[*5] 2.1 The rights and obligations of the parties arising out of or relating to the Member’s membership of, and/or underwriting of insurance business at, Lloyd’s and any other matter referred to in this Undertaking shall be governed by and construed in accordance with the laws of England.

2.2 Each party hereto irrevocably agrees that the courts of England shall have exclusive jurisdiction to settle any dispute and/or controversy of whatsoever nature arising out of or relating to the Member’s membership of, and/or underwriting business at Lloyd’s … .

With the substantial increase in overseas business, U.S. Courts have found forum selection clauses in international business contracts to be not only enforceable but encouraged. See, e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Three U.S. circuits have recently determined that the Society of Lloyd’s , the Committee of Lloyd’s , the Corporation of Lloyd’s , the Council of Lloyd’s , Members’ Agents, Managing Agents, Active Underwriters, their chairmen and directors, and Syndicates may not be sued in the U.S. by virtue of contractual forum selection clauses similar to those set forth above. Bonny v. Society of Lloyd’s , 1993 WL 292345, Aug. 5, 1993 (7th Cir.1993); Roby v. Corporation of Lloyd’s , Case No. 92-9032, June 2, 1993 (2d Cir.1993); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.), cert. denied,113 S.Ct. 658 (1992). Thus, the forum selection clauses at issue in this case are valid. The question remains whether defendants can require enforcement of these clauses.

Plaintiffs Have Established A Colorable Claim To The Existence Of An Attorney-Client Relationship With Defendants

Defendants initially accused plaintiffs of suing them rather than Lloyd’s in an attempt to escape the application of the forum selection clauses in the General Undertakings plaintiffs had signed. If defendants are correct in this accusation, and plaintiffs’ claims against LeBoeuf are “feckless,” then defendants would prevail on their motion to dismiss because the forum selection clauses would apply. Accordingly, at the conclusion of the hearing on the motion to dismiss, the parties were requested to provide evidence of the existence, or lack thereof, of an attorney-client relationship between plaintiffs and defendants, in order that the Court could determine whether a colorable independent claim exists against defendants.

Neither a formal contract nor the payment of fees are essential elements to the creation of an attorney-client relationship. E.g., Westinghouse Electric Corp. v. Kerr-McGee Corp., 580 F2d 1311 (7th Cir.), cert. denied,439 U.S. 955 (1978). The client’s understanding and belief as to the existence of an attorney-client relationship is an important element in determining its existence. Hughes v. Paine, Webber, etc., 565 F.Supp. 663, 668 (N.D.Ill.1983). An attorney-client relationship may be inferred from the parties’ conduct. In re Lieber, 442 A.2d 153 (D.C.1982). Reliance by a client on advice given may establish the relationship. Landes v. Hunt, 80 Ohio App.3d 662, 610 N.E.2d 554 (Ohio App.), mot. overruled,65 Ohio St.3d 1458, 602 N.E.2d 254 (Ohio 1992). Another element to be considered is whether the communications between the client and attorney were so confidential as to invoke an attorney-client privilege. Landes, 80 Ohio App. at 668, 610 N.E.2d at 558.

[*6] Plaintiffs have submitted sufficient evidence to support a colorable claim to the existence of an attorney-client relationship between plaintiffs and LeBoeuf. See Transcript of May 29, 1990 meeting (Doc. 41, Plaintiffs’ Exhibit 1); June 7, 1991 correspondence from LeBoeuf to IRS (Id., Exhibit 2); LeBoeuf brochure (Id., Exhibit 3); Affidavits of Professor Monroe H. Freedman (Id., Exhibits 4, 11); August 27, 1991 correspondence from LeBoeuf to SEC (Id., Exhibit 5); January 23, 1986 correspondence from Sturge to plaintiff Dohme referencing LeBoeuf (Id., Exhibit 6); and Affidavit of Attorney Michael C. Durney. (Id., Exhibit 12). The aforementioned exhibits constitute substantial evidence that defendants offered to and did furnish legal advice and assistance to plaintiffs and held themselves out to plaintiffs and to others as plaintiffs’ attorneys.

Plaintiffs’ complaint alleges breach of fiduciary duties, negligent representation, and legal malpractice. These are claims typically raised by a disgruntled client against his attorney. Plaintiffs have not alleged any claim against Lloyd’s or its related entities. By the same token, plaintiffs’ claims do not establish a cause of action against Lloyd’s or its related entities, as was the case with the securities violation claims brought by the plaintiffs in Bonny, Roby, and Riley. For the purpose of the remainder of this discussion, we assume, arguendo, that plaintiffs will be able to establish the existence of an attorney-client relationship with defendants. This decision is not a decision on the merits of plaintiffs’ allegation of an attorney-client relationship. We hold only that plaintiffs have established a colorable, non-frivolous claim to the existence of an attorney-client relationship, thereby precluding the conclusion that this is a “sham” lawsuit against Lloyd’s. Should plaintiffs fail to prove the existence of an attorney-client relationship, they will not prevail on their claims against defendants.

Defendants Are Not Entitled To Enforcement Of The Forum Selection Clauses

Defendants have alleged alternatively that any attorney-client relationship arose entirely from the General Undertaking; therefore, their dispute is covered by the forum selection clauses and this case must be tried in England. FN2 Defendants, however, are not signatories to the General Undertaking. Therefore, even if the dispute between plaintiffs and defendant arose from plaintiffs’ membership with Lloyd’s , defendants still must show that they are third party beneficiaries eligible to enforce the forum selection clauses. Accordingly, at the conclusion of the hearing on the motion to dismiss, defendants were requested to provide evidence that they were third party beneficiaries.

After carefully reviewing defendants’ arguments and the language in the General Undertaking, we do not believe that the signatories to the General Undertaking intended that the forum selection clauses would govern a dispute between Lloyd’s U.S. General Counsel and that law firms’ U.S. clients regarding issues of breach of fiduciary duty, negligent representation, and legal malpractice alleged to have occurred during representation of those clients before the United States Internal Revenue Service. See Hill v. Sonitrol of Southwestern Ohio, 36 Ohio St.3d 36, 521 N.E.2d 780 (1980). Defendants offered the Affidavit of Richard B.L. Prior, the current Deputy Solicitor to the Corporation of Lloyd’s , as evidence that Lloyd’s never intended that LeBoeuf, as a “surrogate” of Lloyd’s , would be subjected to the jurisdiction of the U.S. Courts regarding the negotiation of the 1990 Closing Agreement. (Doc. 16). Since it was not established that Mr. Prior was involved in negotiating and signing plaintiffs’ General Undertakings on behalf of Lloyd’s , Mr. Prior’s ability to speak to the signatories’ intent is limited. Furthermore, the evidence does not establish that LeBoeuf is in fact Lloyd’s “surrogate.” Rather, it appears to be a large U.S. law firm which represents many clients. See infra, p. 13. Thus, defendants have failed to establish that they are third party beneficiaries of the General Undertakings in question.

[*7] Regardless of whether or not a third party beneficiary analysis is appropriate in determining whether plaintiffs are bound by the forum selection clauses, the cases cited by defendants do not conflict with our analysis. Even the recent cases enforcing forum selection clauses as to claims against Lloyd’s and its related entities do not require application of these clauses to the instant dispute.

In Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir.), cert. denied,113 S.Ct. 658 (1992), the plaintiff Name asserted claims under federal and state securities laws and state tort law against the following: the Society and Council of Lloyd’s , a British entity; Kingsley Underwriting and Lime Street Underwriting, British corporations and registered Underwriting Agencies with Lloyd’s ; Bankside Syndicate, a British corporation and registered Managing Agent with Lloyd’s which conducted day to day business with Lime Street FN3; Kingsley, a British citizen and former chairman of Lime Street and former chairman of Kingsley; Hallum, a British citizen and past director of Kingsley and present director of Lime Street; and FirstBank of Vail, N.A., a U.S. entity and holder of plaintiff’s letter of credit.

Riley had entered into a General Undertaking with Lloyd’s and a Members’ Agent’s Agreement with the Underwriters, both of which included forum selection clauses. Id. at 955. The Tenth Circuit held that the parties must abide by their agreement and resolve their disputes in England for three reasons: 1) the parties’ undertaking was truly international in character; 2) all parties other than Riley and FirstBank were British, and 3) virtually all activities giving rise to the suggested claims occurred in England. Id. at 956.

In the instant action, the relationship between plaintiffs and defendants is domestic in nature. While the plaintiffs’ investments with Lloyd’s may be international, the substance of their claims against defendants is not. In the instant action, all of the parties are either U.S. citizens or a U.S. law firm. While there was one U.S. defendant in Riley, damages were not sought against this party. Id. The U.S. bank was a nominal party and did not figure into the Tenth Circuit’s analysis of the case. In the instant action, virtually all of the activities giving rise to the claims of malpractice occurred in the U.S. with respect to a U.S. government agency, the IRS. Defendants’ letters and statements to plaintiffs and third parties allegedly constituting breach of fiduciary duty, negligent representation, and legal malpractice occurred in the U.S. The negotiation of the 1990 Closing Agreement with the IRS apparently occurred for the most part in the U.S., that being the location of defendants and the IRS. (Doc. 33, p. 65).

In Roby v. Corporation of Lloyd’s , Case No. 92-9032, June 2, 1993 (2d Cir.1993), the plaintiff Names asserted claims under federal securities laws and RICO against the following: the Society, Corporation, Committee, and Council of Lloyd’s and their individual Internal Members; Members’ Agents (entities which represented Names in their dealings with Lloyd’s and were obliged to act in sole interest of their principals and by agreement stood in a fiduciary relationship to them), Managing Agents (entities which managed a syndicate and had a contractual duty to Names to manage their syndicates with reasonable care and skill), and the ’s o-Called “Syndicate Defendants. FN4' ”

[*8] The Roby Names had entered into a General Undertaking with Lloyd’s which contained choice of forum and choice of law clauses. They had also entered into Members’ Agent’s Agreements which contained choice of forum, choice of law and arbitration clauses. The Members’ Agent’s Agreements authorized the Members’ Agents to enter into a third agreement on behalf of the Names, the Managing Agent’s Agreement. This agreement, not signed by the Names and often not signed by the Managing Agents, contained choice of forum, choice of law, and arbitration clauses. The Managing Agent’s Agreement authorized the Managing Agents to enter into, on behalf of the Names, the Members’ Agents and themselves, a Syndicate and Arbitration Agreement requiring disputes related to the affairs of a particular syndicate to be arbitrated in London.

The Second Circuit found the Syndicates to be third party beneficiaries of the General Undertaking because 1) they had a pecuniary interest in the certainty and consistency of litigating in one nation’s courts under one nation’s laws and 2) because the broad language of the General Undertaking made it clear that Lloyd’s intent was to benefit all Lloyd’s entities, particularly because potential actions against Lloyd’s itself are limited in nature. The Tenth Circuit further held that the General Undertaking was meant to govern the Names’ general obligations within the entire Lloyd’s community.

In the instant action, LeBoeuf, a U.S. law firm, and its partners cannot be said to have the same pecuniary interest in litigating its legal malpractice cases in England. To the contrary, they would appear to have a pecuniary interest in having their malpractice accusations heard in this country rather than in a foreign forum. While we are sensitive to Lloyd’s desire to have all lawsuits against its entities brought in the English forum, LeBoeuf does not qualify as a Lloyd’s entity or as a member of the Lloyd’s community. There is no evidence that defendants are authorized to practice law in England or that they engaged in the practice of law in England regarding the events at issue in this case. On the contrary, LeBoeuf is a large law firm with offices in ten U.S. states and three foreign countries, having experts in virtually all legal specialties. Martindale-Hubbel Law Directory, 1993. Lloyd’s is but one of their clients. Thus, they are not as closely related to Lloyd’s as the Members’ Agents, Managing Agents, and other Riley defendants who would have little or no function outside the Lloyd’s marketplace.

Attorneys, by the very nature of their business, often represent more than one client at a time. This is not usually a problem, unless a conflict of interest arises. So while it is acknowledged that there was an attorney-client relationship between LeBoeuf and Lloyd’s , this fact alone does not require a finding that LeBoeuf is a Lloyd’s entity any more than it would preclude LeBoeuf from representing plaintiffs or any other clients, absent a conflict of interest.

[*9] In Roby, the Second Circuit found the Managing Agents to be covered by the choice of forum clause in the Managing Agent’s Agreements even though neither the Names nor the Managing Agents had signed them because 1) the Names signed the Members’ Agent’s Agreements which authorized the Managing Agent’s Agreements; and because 2) the Names signed the General Undertaking which required them to abide by all the Byelaws, including Byelaw 8 which prohibited a Name from underwriting insurance at Lloyd’s other than pursuant to standard agreements and that by underwriting insurance at Lloyd’s , the Names had demonstrated their intent to be bound by the Managing Agent’s Agreements. Similarly, the Managing Agents, by their actions in accordance with the “web of standard agreements,” demonstrated their intent to abide by the provisions of the Managing Agent’s Agreements.

In the instant action, the record does not show a “web of standard agreements” containing forum selection clauses as was present in Roby. Defendants point to the power of attorney executed by each plaintiff in favor of LeBoeuf and allege that those documents make defendants Lloyd’s delegates and direct beneficiaries of the General Undertaking. The powers of attorney, however, unlike the Members’ Agent’s Agreements, Managing Agent’s Agreements, and Syndicate and Arbitration Agreements in Roby, do not contain forum selection clauses. Had Lloyd’s or LeBoeuf intended to try legal malpractice claims against LeBoeuf in England, it would have been a simple matter to clearly express such intent by including a forum selection clause in the powers of attorney.

The Second Circuit also found the Individual Chairs of the Members’ Agents and Managing Agents to be entitled to rely on the forum selection clauses incorporated into their employers’ agreements on the theory that employees or disclosed agents of an entity that is a party to an arbitration agreement are protected by that agreement. Critical to this rationale was the Second Circuit’s finding that the complaints against the Chairs were completely dependent on the complaints against the Agents and that to hold otherwise would make it too easy to circumvent the agreements by naming individuals as defendants instead of the entity agents themselves.

In the instant action, there are no allegations of derivative misconduct; i.e., there are no claims made against Lloyd’s or its entities upon which the claims against defendants depend. As discussed above, plaintiffs have stated no cause of action against Lloyd’s or its entities.

In Hugel v. Corporation of Lloyd’s , Case No. 92-2240, July 8, 1993 (7th Cir.1993), Lloyd’s effected an internal disciplinary proceeding against Hugel, an individual Name and U.S. domiciliary, based on suspicions that he was involved in criminal misconduct. Hugel and two U.S. corporations, GCM and OMI,FN5 sued Lloyd’s alleging breach of contract, breach of fiduciary duty, invasion of privacy and tortious interference with business relationships. Plaintiffs alleged that Lloyd’s violated certain assurances that the existence and subject matter of the investigation would be held in absolute confidence. Hugel was a 99% shareholder, president, and chairman of board of GCM. He was also a 100% shareholder, president, chairman of board of OMI. Hugel had entered into a General Undertaking with Lloyd’s which contained forum selection clauses.

[*10] Despite the fact that GCM and OMI were non-parties to the General Undertaking, the Seventh Circuit, declining to apply a third party beneficiary analysis, found the corporations to be bound to the choice of forum clause because they were so closely related to the dispute that it was foreseeable they would be bound.

Hugel is a narrow holding, essentially finding that GCM and OMI were alter egos of the Name. In the instant action, defendants are neither the alter egos of Lloyd’s nor have they made such a claim. As the Seventh Circuit saw it, the issue was whether or not the two corporations were so closely related to the dispute between the Name and Lloyd’s that it was foreseeable that they too would be bound by the forum selection clause. In the instant action, there is no dispute alleged between plaintiffs and Lloyd’s that is the subject matter of the claim against defendants.

In Bonny v. The Society of Lloyd’s , 1993 WL 292345, August 5, 1993 (7th Cir.1993), the plaintiff Names asserted claims under federal and state securities laws, RICO, common law fraud, negligence and breach of fiduciary duty against the following: the Society of Lloyd’s , a British entity; Lime Street Underwriting, a British corporation and Members’ Agent; Bankside Underwriting, a British corporation and Members’ Agent; Robin Kingsley, a British citizen and Members’ Agent; Robert Hallam, a British citizen and Members’ Agent; Patrick Corbett, a British citizen and Members’ Agent; Northfield Venture, Inc. and its principles, Robert King and Alan Hunken, U.S. defendants and agents of Lloyd’s and Lime Street operating in the U.S. (U.S. Defendants); and Harris Bank and Bank of Montreal, (Bank Defendants) FN6. Plaintiff K. Bonny was solicited by defendant King in Illinois to invest in Lloyd’s. Plaintiff F. Bonny invested based on representations made by King to her husband. Plaintiff Flevsig was solicited by defendant Hunken. King and Hunken introduced plaintiffs to Lime Street. Lime Street compensated King and Hunken for the introduction.

The Bonny Names had executed a General Undertaking with Lloyd’s containing choice of forum and choice of law clauses and a Members’ Agent Agreement containing choice of forum, choice of law, and arbitration clauses.

The District Court granted Lloyd’s and the Member’s Agents’ motion to dismiss based on contractual forum selection. In a clarification order, the District Court ruled that its dismissal applied to all defendants, explaining that the non-moving U.S. Defendants were dismissed sua sponte. The Seventh Circuit affirmed, because 1) the U.S. Defendants were in a position similar to that of the other defendants, and 2) because the claims against all the defendants were integrally related. The plaintiffs had alleged that the U.S. Defendants were agents of Lloyd’s and Lime Street and that the omissions and misrepresentations were attributable to all defendants. Counsel for both sides agreed that the parties were indispensable to each other. The dismissal was qualified on the condition that the U.S. Defendants would agree to appear voluntarily in England if suit was refiled there.

[*11] In the instant action, LeBoeuf and its partners are not in a position similar to a Lloyd’s entity defendant-in fact, there are no other defendants. Since plaintiffs have raised no claims against Lloyd’s or its related entities, the claims against defendants are not integrally related to any such claims. Furthermore, plaintiffs do not assert that the acts of malpractice were committed by defendants as agents of Lloyd’s. Rather, they allege defendants committed these acts as plaintiffs’ agents. As discussed earlier, Lloyd’s is certainly not an indispensable party to this lawsuit. Finally, defendants have presented no authority that an English court has jurisdiction over this lawsuit between U.S. domiciled parties, the subject matter of which was conduct occurring primarily within the U.S. in regard to U.S. tax laws.FN7

CONCLUSION

In summary, there are many factors distinguishing the instant action from the cases enforcing Lloyd’s forum selection clauses. In all cases defendants cited, the plaintiff Names were attempting to apply U.S. law against British defendants. Here, instead, plaintiffs are attempting to apply U.S. law against U.S. defendants. The relationship between plaintiffs and defendants is not truly international. The substance of plaintiffs’ claims is not international. Since Lloyd’s is not a party to this lawsuit and could not be joined as a defendant, there is no international interest to be protected as there was in Riley and The Bremen. All of the parties are American and virtually all of the activities giving rise to plaintiffs’ claims occurred in the U.S. Defendants do not have a pecuniary interest in defending these allegations in England as did the defendant Syndicates in Roby. LeBoeuf, although counsel to Lloyd’s , is not a Lloyd’s “entity” as were the defendants in Roby, Riley, and Bonny. Plaintiffs’ claims against defendants are not derivative or integrally dependent on any claims against Lloyd’s entities as was the case in Bonny and Roby. LeBoeuf is not a general agent of Lloyd’s in the same sense as the U.S. defendants in Bonny. Defendants have produced neither an agreement signed by plaintiffs and defendants containing a forum selection clause nor a “web of standard agreements” involving defendants as were present in Roby. Plaintiffs have not challenged the validity of the General Undertaking, the LeBoeuf power of attorney, or the forum selection clauses; they instead have challenged the conduct of defendants during their alleged legal representation of plaintiffs. Finally, defendants have presented no authority that an English court has jurisdiction over this dispute.

While there can be little question that defendants were acting on behalf of Lloyd’s in negotiating the 1990 Closing Agreement, under plaintiffs’ theory, which we find to be supported by substantial evidence and not frivolous, defendants were also acting as plaintiffs’ representatives and owed them a duty to act in their best interest as well. Thus, it is not defendants’ relationship with Lloyd’s that is the primary subject of this case, but rather defendants’ relationship with plaintiffs. We can find no justification to permit a U.S. law firm and its partners to compel U.S. plaintiffs, who have presented a colorable claim of an attorney-client relationship with defendants, to bring causes of action against defendants arising from that relationship in a foreign court. Therefore, the forum selection clauses at issue are not enforceable in this case.

[*12] In view of the above, it is not necessary to address defendants’ allegation that plaintiffs have failed to show that a trial in England would be so gravely difficult and inconvenient that plaintiffs would for all practical purposes be deprived of their day in court. These exceptions to the enforcement of a forum selection clause are only considered if the forum selection clause is first found to be enforceable. The Bremen, 407 U.S. at 14. Similarly, it is not necessary to address plaintiffs’ allegation that defendants’ motion is not properly supported by authenticated documents.

IT IS HEREBY RECOMMENDED THAT:

Defendants’ motion to dismiss be DENIED.

FN1. Unless otherwise noted, the history of Lloyd’s of London is taken from the Report to Congress on the Taxation of Income Earned by Members of Insurance or Reinsurance Syndicates. (Doc. 40, Tab 5, Ex. E).

FN2. Although not raised by the parties, there is a question of which forum’s law, U.K. or U.S., would apply to the third party beneficiary issue. At the hearing on the motion to dismiss, defendants readily conceded that U.S. law should be used to determine the existence of third party beneficiary status. This is contradictory to the choice of law clause in the General Undertaking.

FN3. The court referred to Kingsley Underwriting, Lime Street Underwriting, and Bankside Syndicate as the “Underwriting Defendants.”

FN4. The court referred to the syndicates as “entities,” although this was a disputed issue. Although it is not clear, it appears these syndicates are British organizations. The thrust of the Roby decision is that all Lloyd’s “entities” are to be protected by the forum selection clauses in the various contracts between the parties.

FN5. GCM had its principal office in New Orleans; OMI was a subsidiary of GCM.

FN6. Although not clear from the record, the Bank Defendants are presumed to be holders of plaintiffs’ letters of credit.

FN7. The Bonny court apparently observed this problem, qualifying dismissal of the U.S. defendants only on their voluntary agreement to appear in an English court. Since there are no English defendants in the instant case over which an English court would have jurisdiction, defendants’ voluntary agreement to appear in an English court (which agreement has not been tendered) could not confer upon that court jurisdiction to hear the instant controveries.