1997 WL 33545604 (9th Cir.)

For opinion see 135 F.3d 1289

United States Court of Appeals, Ninth Circuit.

Alan RICHARDS, et al., Plaintiffs/Appellants, v.

LLOYD'S OF LONDON, an unincorporated association, et al., Defendants/Appellees.

John Norton, III, et al., Plaintiffs/Appellants, v.

Lloyd's of London, an unincorporated association, et al., Defendants/Appellees.

Nos. 95-55747 & 95-56467.

May 23, 1997.

Appeal from the United States District Court for the Southern District of California, Case Nos. 94-1211-IEG & 95-0952-IEG, Irma E. Gonzalez, Judge

Response of Defendant/Appellee the Corporation of Lloyd's, a/k/a the Society of Lloyd's, a/k/a the Council of Lloyd's, to Plaintiffs'/Appellants' Petition for Rehearing

Dean Hansell (State Bar No. 93831), LeBoeuf, Lamb, Greene & MacRae, L.L.P., 725 South Figueroa Street, Citicorp Center, 36th Floor, Los Angeles, California 90017, Telephone: (213) 955-7300, Telecopier (213) 955-7399, Attorneys for Defendant/Appellee The Corporation of Lloyd's, a/k/a The Society of Lloyd's, a/k/a The Council of Lloyd's

Harvey L. Pitt, Debra M. Torres, Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004, Telephone: (212) 859- 8000, Telecopier: (212) 859-4000, Attorneys for Defendant/Appellee The Corporation of Lloyd's, a/k/a The Society of Lloyd's, a/k/a The Council of Lloyd's

TABLE OF CONTENTS

TABLE OF AUTHORITIES ... ii

PROCEDURAL HISTORY ... 2

I. PLAINTIFFS HAVE WAIVED ANY CLAIM BASED ON THE ANTI-WAIVER PROVISIONS OF CERTAIN STATE BLUE SKY STATUTES ... 4

A. Plaintiffs Did Not Raise This Argument Below ... 4

B. Plaintiffs Failed to Raise This Argument on Appeal ... 6

II. ANY RULING BY THIS COURT ON THE BLUE SKY CLAIMS WOULD BE AN IMPERMISSIBLE ADVISORY OPINION ... 7

III. THE ANTI-WAIVER PROVISIONS OF CERTAIN BLUE SKY STATUTES DO NOT PROVIDE A BASIS TO DENY ENFORCEMENT OF THE CHOICE CLAUSE ... 7

A. Cases Involving Claims Under the Blue Sky Laws Have Unanimously Enforced the Choice Clause ... 7

B. The Anti-Waiver Provisions of the Blue Sky Laws Do Not Void the Choice Clause ... 10

CONCLUSION ... 14

TABLE OF AUTHORITIES

Cases

Accelerated Christian Educ., Inc. v. Oracle Corp., 925 S.W.2d 66 (Tex. App. 1996) ... 9

All Pac. Trading, Inc. v. Vessel M/V Hanjin Yosu, 7 F.3d 1427 (9th Cir. 1993), cert. denied, 510 U.S. 1194 (1994) ... 6-7

Argueta v. Banco Mexicano, S.A., 87 F.3d 320 (9th Cir. 1996) ... 11

Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993), cert. denied, 510 U.S. 1113 (1994) ... 8

Edgar v. MITE Corp., 457 U.S. 624 (1982) ... 13 n.5

Frietsch v. Refco, Inc., 56 F.3d 825 (7th Cir. 1995) ... 4

Gau Shan Co., Ltd. v. Bankers Trust Co., 956 F.2d 1349 (6th Cir. 1992) ... 10

Haynsworth v. Lloyd's of London, 933 F. Supp. 1315 (S.D. Tex. 1996) ... 5, 8, 9 n.3

In re Worlds of Wonder Secs. Litig., 35 F.3d 1407 (9th Cir. 1994), cert. denied, 116 S. Ct. 227 (1995) ... 6

Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979) ... 13

Mitsui & Co. (USA), Inc. v. Mira M/V, 111 F.3d 33 (5th Cir. 1997) ... 11-12 n.4

Ravell v. United States, 22 F.3d 960 (9th Cir. 1994) ... 4

Richards v. Lloyd's of London, 107 F.3d 1422 (9th Cir. 1997) ... 1, 11 n.4

Riley v. Kingsley Underwriting Agencies, Inc., 969 F.2d 953 (10th Cir.), cert. denied, 506 U.S. 1021 (1992) ... 8

Scherk v. Alberto-Culver, Co., 417 U.S. 506 (1974) ... 2, 11

Shell v. R.W. Sturge, Ltd., 850 F. Supp. 620 (S.D. Ohio 1993), aff'd, 55 F.3d 1227 (6th Cir. 1995) ... 10

Summers v. Wallace Hosp., 276 F.2d 831 (9th Cir. 1960) ... 8

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) ... 10

United States v. Loya, 807 F.2d 1483 (9th Cir. 1987) ... 6

United States v. Richardson, 418 U.S. 166 (1974) ... 7

West v. Lloyd's, No. BC111313, slip op. (Cal. Super. Ct., Los Angeles Co., May 19, 1995), appeal docketed, No. 2d B095440 (Cal. Ct. App. July 27, 1995) ... 8

Western Mining Council v. Watt, 643 F.2d 618 (9th Cir.), cert. denied, 454 U.S. 1031 (1981) ... 11

Zschernig v. Miller, 389 U.S. 429 (1968) ... 14

Statutes & Codes

15 U.S.C. § 77n ... 3

15 U.S.C. § 78cc(a) ... 3

Cal. Corp. Code § 25701 ... 3

Tex. Bus. & Comm. Code § 17.42 ... 9 n.3

Rules

F.R.A.P. 29 ... 12

Defendant-appellee, The Corporation of Lloyd's ("Lloyd's"), respectfully submits this Response to plaintiff-appellants' Petition for Rehearing (the "Petition"), pursuant to this Court's order dated May 2, 1997. The Petition seeks modification of this Court's opinion and judgment insofar as it affirmed the district court's dismissal of claims under the securities statutes of all fifty states (the "Blue Sky" laws). This Court's previous ruling on the Blue Sky claims was correct, no such modification is warranted, and the Petition should be denied.

The Blue Sky claims were not only "pleaded perfunctorily and without reference to any particular state law prohibitions against the Choice Clauses," Richards v. Lloyd's of London, 107 F.3d 1422, 1430 (9th Cir. 1997), but also were waived by plaintiffs' failure to raise such claims in the Amended Complaint, in the district court, or on appeal.

Furthermore, even assuming the correctness of this Court's holding that the anti-waiver provisions of the federal securities laws bar enforcement of the Choice Clause -- which Lloyd's respectfully disputes -- this Court should not reverse the district court's dismissal of the Blue Sky claims. The Choice Clause is critical to Lloyd's exercise of its statutorily delegated regulatory authority over an international insurance market operating in England under English law. Subjecting an English regulator to suit under the statutory schemes of twenty-two different states not only contravenes the Supreme Court's holding in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), but also offends both the "case or controversy" requirement and the Commerce Clause of the United States Constitution, as well as principles of international comity.

PROCEDURAL HISTORY

Plaintiffs commenced this action alleging violations of the federal securities laws and the federal RICO statute, as well as various common law causes of action. The Amended Complaint also made blanket allegations that all fifty Blue Sky statutes had been violated, without distinguishing one particular statute's provisions from another, or alleging the applicability of any particular statute. See Appellants' Excerpts of Record ("Appellants' Excerpts") at tab 4, ¶¶ 284-300 and App. D. [FN1]

FN1. The Amended Complaint alleges (SI 90) that 132 of 574 plaintiffs were, at the time of its filing, residents of California and that the remaining 442 resided at unspecified locations elsewhere in the United States. See also Norton Complaint at ¶ 90 (alleging that 13 of 35 individual plaintiffs reside in California, with remainder "domiciled in the balance of the United States"). (Approximately half of the plaintiffs have subsequently settled and released their claims against Lloyd's.)

To establish standing under a Blue Sky statute, the relevant question is not which state a Name now resides in but which state the Name resided in when the alleged "securities" transaction occurred. No assumption can be made that any plaintiff had the same domicile at the time the complaint was filed as when the purported "securities" were allegedly "sold" between 1970 and 1993. The Amended Complaint does not allege that Lloyd's offered or sold "securities" to the plaintiffs in any specifically identified state.

The Amended Complaint specifically sought (¶¶ 229-35) a declaratory judgment that the Choice Clause was unenforceable, on the alleged grounds that the Choice Clause: [1] was procured by Lloyd's as "the result of fraud and overreaching and in violation of the federal securities laws" (id. at ¶ 230, emphasis added); and [2] "require [d] an improper waiver of compliance with the 1933 Securities Act (see, 15 U.S.C. § 77n) and the 1934 Exchange Act (see, 15 U.S.C. § 78cc(a))" (id. at 1 233). However, the Amended Complaint did not allege that the Choice Clause was unenforceable under any Blue Sky statute.

Plaintiffs made no claim, in opposition to Lloyd's motion to dismiss, that the anti-waiver provisions of any Blue Sky statute rendered the Choice Clause unenforceable, either in their briefs or at oral argument. See Appellants' Excerpts at tab 80; id. at tab 116; Appellees' Excerpts of Record item R.T. Plaintiffs' first (and only) reference to any Blue Sky statute was buried in a footnote in their opening brief on appeal. See Appellants' Opening Brief, May 6, 1996, at 25 n.25. This perfunctory mention of a single statute, Cal. Corp. Code § 25701, did not refer, directly or indirectly, to any other state's Blue Sky statute. No reference to any Blue Sky statute was made at oral argument by plaintiffs.

I. PLAINTIFFS HAVE WAIVED ANY CLAIM BASED ON THE ANTI-WAIVER PROVISIONS OF CERTAIN STATE BLUE SKY STATUTES

A. Plaintiffs Did Not Raise This Argument Below

Plaintiffs waived any defense to the enforcement of the Choice Clause based on the anti-waiver provisions of any Blue Sky statute because they failed to raise this argument in the district court. See, e.g., Ravell v. United States, 22 F.3d 960 (9th Cir. 1994) (argument based on construction of state statute raised for first time on appeal was waived because it had not been made in the district court).

Although plaintiffs sought a declaratory judgment that the Choice Clause was unenforceable, the Amended Complaint does not allege the anti-waiver provisions of any Blue Sky statute as a basis for this relief. While plaintiffs were obliged to assert any and all grounds for opposing dismissal they might have, they likewise failed to raise this argument in response to Lloyd's motion to dismiss the Amended Complaint. Frietsch v. Refco, Inc., 56 F.3d 825 (7th Cir. 1995) (plaintiffs precluded from raising new arguments for non-enforcement of forum selection clause after district court granted defendants' motion to dismiss based on that clause). Plaintiffs' failure to raise these arguments before the district court vitiated their ability to raise them on appeal, or to rely on them as a ground for rehearing.

A number of the plaintiffs in this action have not only acknowledged this waiver, but have also attempted to use it to their advantage in another forum. Thirty-two of the non-settling plaintiffs here are also plaintiffs in Haynsworth v. Lloyd's of London, 933 F. Supp. 1315 (S.D. Tex. 1996), in which they asserted claims under two Texas statutes, including the Texas Blue Sky law. The Texas federal court held that those plaintiffs who were also Richards plaintiffs were collaterally estopped by the district court's judgment in this action from contesting the enforceability of the Choice Clause. These plaintiffs have argued on appeal to the Fifth Circuit that they are not collaterally estopped from relying on the anti-waiver provisions of the Texas Blue Sky statute because "[i]n Richards, the court was only asked and only decided whether the forum selection clause was void and unenforceable as a result of fraud and overreaching by Lloyd's, or because it violated the anti- waiver provisions of federal securities law." [FN2]

FN2. See Exhibit A at 23. The Fifth Circuit heard oral argument in Haynsworth on April 29, 1997, but has not yet rendered a decision. The Haynsworth plaintiffs who are also plaintiffs in this action conceded that they were collaterally estopped by the judgment below on the issue of whether the Choice Clause was induced by fraud or overreaching. Id. at 23 n.19. Because this Court affirmed the district court on that issue and no federal securities claims were made in Haynsworth, this Court's partial reversal of the judgment below has had no impact on its collateral estoppel effect on the Haynsworth plaintiffs.

B. Plaintiffs Failed to Raise This Argument on Appeal

Even if plaintiffs had raised their Blue Sky anti-waiver argument in the district court, plaintiffs waived it by failing to raise it before this Court. This Court was not obliged to conduct sua sponte its own fifty state survey to discover the alleged "material legal authority" upon which plaintiffs base their Petition. Plaintiffs' single perfunctory reference to the anti-waiver provision of California's Blue Sky statute was wholly inadequate to preserve any argument based on that provision, much less the Blue Sky laws of any other state. In re Worlds of Wonder Sees. Litig., 35 F.3d 1407, 1424 (9th Cir. 1994) (argument alluded to only in single footnote of appellants' brief deemed waived), cert. denied, 116 S. Ct. 277 (1995); United States v. Loya, 807 F.2d 1483, 1487 (9th Cir. 1987) ("Issues raised in a brief which are not supported by argument are deemed abandoned.").

Plaintiffs' waiver of their Blue Sky argument against enforceability of the Choice Clause is made further evident by their complete failure to make any reference -- either in their opening brief, their reply brief or at oral argument -- to any of the other statutes which they cite. Even if these arguments had been raised in the district court (which they were not), any contention that the district court committed reversible error in dismissing claims based on these statutes has been waived. See All Pac. Trading, Inc. v. Vessel M/V Hanjin Yosu, 7 F.3d 1427, 1434 (9th Cir. 1993) (refusing to consider argument not raised in opening brief on appeal), cert. denied, 510 U.S. 1194 (1994).

II. ANY RULING BY THIS COURT ON THE BLUE SKY CLAIMS WOULD BE AN IMPERMISSIBLE ADVISORY OPINION

Given the complete absence in the Amended Complaint of allegations that activities took place with respect to any plaintiff in any particular state, a ruling by this Court that the anti-waiver provisions of a Blue Sky statute render the Choice Clause unenforceable would be a pure advisory opinion which this Court lacks jurisdiction under Article III of the Constitution to provide. United States v. Richardson, 418 U.S. 166, 174 (1974).

III. THE ANTI-WAIVER PROVISIONS OF CERTAIN BLUE SKY STATUTES DO NOT PROVIDE A BASIS TO DENY ENFORCEMENT OF THE CHOICE CLAUSE

The panel majority's conclusion that the anti-waiver provisions of the federal securities laws render the Choice Clause unenforceable as to federal securities claims, even if correct, does not require a holding that an anti-waiver provision in a state's Blue Sky law likewise voids the Choice Clause as to claims under such statute.

A. Cases Involving Claims Under the Blue Sky Laws Have Unanimously Enforced the Choice Clause

The Choice Clause has been enforced in every prior Lloyd's case involving claims under the Blue Sky statutes, including claims under the twenty-two statutes with anti-waiver provisions. See, e.g., Riley v. Kingsley Underwriting Agencies, Inc., 969 F.2d 953, 956 (10th Cir.) (dismissing Colorado Blue Sky claims), cert. denied, 506 U.S. 1021 (1992); Bonny v. Society of Lloyd's, 3 F.3d 156, 157 (7th Cir. 1993) (dismissing various state Blue Sky claims which, as set forth in the complaint, included New Jersey Blue Sky claims), cert. denied, 510 U.S. 1113 (1994); Haynsworth, 933 F. Supp. at 1323 (dismissing Texas Blue Sky claims); West v. Lloyd's, No. BC111313, slip op. (Cal. Super. Ct., Los Angeles Co., May 19, 1995) (dismissing California Blue Sky claims), appeal docketed, No. 2d B095440 (Cal. Ct. App. July 27, 1995) .

As this Court acknowledged, its interpretation of the anti waiver provisions of the federal securities statutes represents the minority view and is not shared by any other circuit. There is thus no basis for this Court to presume that twenty-two separate state anti-waiver provisions would be interpreted by the relevant states' courts in accordance with that minority view rather than with the majority view expressed by the Second, Fourth, Sixth, Seventh, and Tenth Circuits. See, e.g., Summers v. Wallace Hosp., 276 F.2d 831, 834 (9th Cir. 1960) (following the rule supported by "[t]he great weight of authority in this country" in case presenting a dispositive issue of Idaho law upon which the Idaho courts had not yet passed, despite arguments that the minority rule reflected the sounder view of public policy).

In Texas, for example, in Accelerated Christian Educ. , Inc. v. Oracle Corp., 925 S.W.2d 66, 74 (Tex. App. 1996), an appellate court expressly rejected a claim that the anti-waiver provisions of the Texas Deceptive Trade Practice-Consumer Protection Act ("DTPA") precluded enforcement of a forum selection clause requiring litigation in California, holding that "contractually selecting a forum for future litigation is not an impermissible waiver of rights under the DTPA." [FN3]

FN3. The relevant provision of the DTPA, using language very similar to that of the Texas Blue Sky statute quoted in the addendum to the Petition, provides that "[a]ny waiver by a consumer of the provisions of this subchapter is contrary to public policy and is unenforceable and void." Tex. Bus. & Comm. Code § 17.42. The Haynsworth court relied on Accelerated Christian in dismissing claims under the DTPA and the Texas Blue Sky law. 933 F. Supp at 1323.

Only three of the Blue Sky statutes cited by plaintiffs in the Petition were enacted by states within the Ninth Circuit. As noted in Lloyd's Petition, this Court's ruling on plaintiffs' federal claims encourages forum shopping by permitting Names domiciled in the Second, Fourth, Sixth, Seventh, and Tenth Circuits, and barred by controlling precedent in those jurisdictions from suing Lloyd's, to circumvent those precedents by suing in this circuit instead. This problem would be further exacerbated by a holding that the Choice Clause was unenforceable under twenty-two different Blue Sky statutes, leading to the anomalous situation, for example, of a Colorado Name asserting Colorado statutory claims in the Southern District of California that would be barred by Riley in the District of Colorado.

B. The Anti-Waiver Provisions of the Blue Sky Laws Do Not Void the Choice Clause

The Supreme Court's presumption in favor of enforceability of forum selection clauses in international agreements is based on considerations of international comity and facilitating international commerce. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972). Even assuming that, as this Court concluded, a provision in a federal statute may override the Bremen presumption of enforceability, the statutes or public policy of an individual state are not entitled to the same weight as is a federal statute and are insufficient to overcome the strong federal interest in promoting international comity and commerce. Gau Shan Co., Ltd, v. Bankers Trust Co., 956 F.2d 1349, 1358 (6th Cir. 1992) ("When weighed against the concerns of international comity, the public policies of a state deserve less weight than the public policies of the nation."); Shell v. R.W. Sturge, Ltd., 850 F. Supp. 620, 630 (S.D. Ohio 1993) ("The public policy interests behind many state statutes, even statutes which contain anti-waiver and treble damage provisions, must yield to the countervailing interest in the enforceability of international agreements."), aff'd, 55 F.3d 1227 (6th Cir. 1995).

Nor may this Court hold that the anti-waiver provision of a state's Blue Sky statute negates the Bremen presumption of enforceability by assuming the truth of plaintiffs' claims that they purchased a "security." As discussed in Lloyd's Petition for Rehearing and Suggestion for Rehearing En Bane, ("Lloyd's Petition") in ruling on "motions to dismiss based on a forum selection clause, the pleadings are not accepted as true." Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). Indeed, plaintiffs' claim that they purchased "securities" within the meaning of the various Blue Sky statutes is a pure conclusion of law, which cannot be presumed to be true under any circumstances. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.) (legal assertions not assumed to be true in the context of a Rule 12(b) (6) motion), cert. denied, 454 U.S. 1031 (1981).

Scherk v. Alberto-Culver, 417 U.S. 506 (1974), holds that, in the context of international agreements, the mere allegation that the challenged transaction involves the sale of a security cannot be the basis for a conclusion that the anti-waiver provisions void a forum selection clause, even if the anti-waiver provisions would void such a clause in a purely domestic context. [FN4] Whether a security exists, like the other questions presented by the dispute, must be decided by the chosen forum unless the forum selection clause is unenforceable for one of the four specified reasons set forth in Bremen. The bare allegation that a security exists can only be considered in assessing whether the remedies available in the selected forum are so deficient that the plaintiff "will for all practical purposes be deprived of his day in court." 407 U.S. at 18.

FN4. Although the panel majority distinguished Scherk on the grounds that it had involved an arbitration clause subject to the Federal Arbitration Act, 107 F.3d at 1426-27, a very recent decision by the Fifth Circuit correctly recognized Scherk's holding on this point and ruled that the enforceability of arbitration clauses and other forum selection clauses in the international context is determined by the same standard, even when it is claimed that the clause violates an express prohibition in a federal statute. Mitsui & Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 36 (5th Cir. 1997).

Bremen and Scherk apply with even greater force in this case than in the case of an ordinary international transaction. Lloyd's is not a mere "business corporation" but rather the statutory regulator of an international insurance market which is a creature of English law, and is subject to oversight by the British Government. Letter dated March 20, 1997, from the U.K. Minister of Trade to Ms. Cathy Catterson, at 1 (submitted by British Government as amicus curiae in lieu of a brief pursuant to F.R.A.P. 29). As made clear by the British Government, "[i]t would be detrimental to this regulatory regime approved by Parliament if insurers, whether at Lloyd's or elsewhere, could frustrate the operation of those arrangements by invoking the assistance of courts in other jurisdictions in direct contravention of the choice clause contained in the General Undertaking." Id. at 2. If suits alleging federal securities claims would interfere with Lloyd's exercise of its regulatory authority, permitting plaintiffs to sue under the potentially conflicting Blue Sky laws of twenty-two different states would increase such interference exponentially.

Permitting a state statute to interfere with a foreign regulator in this manner would be not only unwise but also unconstitutional. State statutes may not unduly burden international commerce, and the dormant Commerce Clause's limitations on state statutes which affect international commerce are more rigorous than the limitations on statutes affecting only interstate commerce, and require a "more extensive constitutional inquiry." Japan Line, Ltd, v. County of Los Angeles, 441 U.S. 434, 446 (1979). Japan Line struck down a California statute because, as applied, it impermissibly burdened international commerce, but the Court expressly noted that it would have upheld the statute had it affected only domestic interstate commerce. Id. at 445-46. [FN5] This distinction is strikingly similar to that drawn in Scherk, where the Court held the anti-waiver provisions of the federal securities statutes did not bar enforcement of an international forum selection clause that would have been held invalid in a purely domestic context.

FN5. Even without considering the additional scrutiny required by an effect on international commerce, Blue Sky statutes are consistent with the Commerce Clause only insofar as they have no extraterritorial application.

See Edgar v. MITE Corp., 457 U.S. 624, 641-43 (1982) (plurality opinion) (striking down Illinois securities regulation statutes with extraterritorial effect). Application of a Blue Sky statute to interfere with Lloyd's exercise of its regulatory authority in England clearly has such an extraterritorial effect.

Blue Sky anti-waiver provisions, if construed to bar enforcement of the Choice Clause, would also be unconstitutional as applied under Zschernig v. Miller, 389 U.S. 429 (1968) (holding state statute that infringed on exclusive federal power over foreign affairs unconstitutional because its application permitted and required individual state government to engage in its own ad hoc evaluation of the adequacy of legal rights and remedies available to Americans in foreign countries).

CONCLUSION

For the foregoing reasons, as well as the reasons set forth in Lloyd's Petition, the plaintiffs'/appellants' petition for rehearing should be denied.

Appendix not available.