2004 WL 1811234 (11th Cir.)
For opinion see 107 Fed.Appx. 887
United States Court of Appeals,
Eleventh Circuit.
The SOCIETY OF LLOYD'S, Plaintiff-Appellee,
v.
Julius Peek GARLINGTON and Glenn Wayne Manning,
Defendants-Appellants.
No. 03-13794 HH.
February 06, 2004.
ON APPEAL FROM THE NORTHERN DISTRICT OF GEORGIA CASE NO. 1
02-CV-1602-GET
Brief of Appellant
Theodore W. Grippo, Jr., Lindenbaum Coffman, Kurlander Brisky
& Grippo, Ltd., Three First National Plaza, Suite 2315, Chicago, IL
60602-4206, (312) 855-4410
A. Stephens Clay, Stephen E. Hudson, Kilpatrick Stockton LLP, 1100
Peachtree St., Suite 2800, Atlanta, GA 30309-4530 (404) 815-6500
FNAttorneys for Defendant-Appellant, Glenn Wayne Manning
STATEMENT REGARDING ORAL ARGUMENT
Defendant-Appellant Manning does request oral argument. This case
presents important issues of securities law policy and the authority of a
federal court to protect the integrity of its judicial processes, as follows:
When foreigners solicit investment from U.S. investors, may they subvert the
application of U.S. securities law by obtaining U.S. court rulings requiring
U.S. citizens to litigate abroad by misrepresenting the rights and remedies
available abroad, or may a federal court redress that fraud when asked to
enforce foreign judgments that were obtained as a result of the fraud?
*i TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS AND CORPORATE DISCLOSURE
STATEMENT ... C-1
STATEMENT REGARDING ORAL ARGUMENT ...
TABLE OF CONTENTS ... i
TABLE OF CITATIONS ... iii
STATEMENT OF JURISDICTION ... 1
STATEMENT OF THE ISSUES ... 2
STATEMENT OF THE CASE ... 3
A. Course of Proceedings and Disposition in the Court Below ... 3
B. Statement of Facts ... 5
1. Lloyd's Implements Its Reconstruction and Renewal Plan ... 5
2. Lloyd's Makes Misrepresentations to United States Courts and
American Names ... 7
3. Lloyd's Deprives Names of Due Process and Obtains Judgments
Against Them ... 11
4. Lloyd's Refuses to Respond to Any Discovery and Seeks Summary
Judgment ... 13
C. Statement of the Standard of Review ... 14
SUMMARY OF THE ARGUMENT ... 14
ARGUMENT AND CITATION OF AUTHORITY ... 15
A. The District Court Abused Its Discretion in Refusing to Permit
Appellant Manning to Conduct Discovery Before Ruling on Lloyd's Summary
Judgment Motion ... 16
*ii B. Appellant Manning Is Entitled to Conduct Meaningful
Discovery in Order to Obtain Evidence That Lloyd's Judgments Obtained in
English Court Are Unenforceable Because They Were Procured by Fraud ... 19
CONCLUSION ... 27
CERTIFICATE OF COMPLIANCE WITH RULE 32(a) ...
CERTIFICATE OF SERVICE ...
Note: Table of Contents page numbers missing in original document
*iii TABLE OF CITATIONS
Cases
Abramson v. Gonzalez, 949 F.2d 1567 (11th Cir. 1992) ... 14, 20
Allen v. Lloyd's, No.3:96CV522, 1996 WL 490177 (E.D. Va. August
23, 1996), rev'd, Allen v. Lloyd's of London, 94 F.3d 923 (4th Cir. 1996) ...
passim
Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993), cert.
denied, 510 U.S. 113 (1994) ... 11, 25
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ... 16
Dixon v. Commissioner, 316 F.3d 1041 (9th Cir. 2003) ... 15, 23
Fund for Animals, Inc. v. Rice, 85 F.3d 535 (11th Cir. 1996) ...
14
Galindo v. ARI Mut. Ins. Co., 203 F.3d 771 (11th Cir. 2000) ... 20
Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074
(7th Cir. 1997) ... 20
Glassman v. Computervision Corp., 90 F.3d 617 (1st Cir. 1996) ...
20
Haynsworth v. The Corp., 121 F.3d 956 (5th Cir. 1997) ... 11
Hilton v. Guyot, 159 U.S. 113 (1895) ... 15, 16, 20
Intermagnetics Am., Inc. v. China Int'l Trust and Inv. Corp. (In
re Intermagnetics), 926 F.2d 912 (9th Cir. 1999) ... 23
Jefferson County Sch. Dist. No. R-1 v. Moody's Investor's Servs.,
Inc., 175 F.3d 848 (10th Cir. 1999) ... 20
Jones v. City of Columbus, Georgia, 120 F.3d 248 (11th Cir. 1997)
... 5, 17
Keystone Driller Co. v. Byers Machine Co., 4 F. Supp. 159 (1929)
... 22, 23
Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933)
... 15, 21, 23
Levander v. Prober (In re Levander), 180 F.3d 1114 (9th Cir. 1999)
... 23
*iv Lipcon v. Underwriters of Lloyd's, London, 148 F.3d 1285 (11th
Cir. 1998) 10, 19, 25, 26
Richards v. Lloyd's of London, 135 F.3d 1289 (9th Cir. 1998) ... 10
Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th
Cir.), cert. denied, 506 U.S. 1021 (1992) ... 11, 26
Robey v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.), cert.
denied, 510 U.S. 945 (1993) ... 11, 26
Shane v. Fauver, 213 F.3d 113 (3d Cir. 2000) ... 20
Shell v. R. W. Sturge, Ltd., 55 F.3d 1227 (6th Cir. 1995) ... 11
Snook v. Trust Co. of Ga. Bank, NA, 859 F.2d 865 (11th Cir. 1988)
... 17
Soc'y of Lloyd's v. Ashenden, 233 F.3d 473 (7th Cir. 2000) ... 26
Soc'y of Lloyd's v. Mullin, 255 F. Supp. 2d 468 (E.D. Pa. 2003)
... 26
Soc'y of Lloyd's v. Turner, 303 F.3d 325 (5th Cir. 2002) ... 26
Soc'y of Lloyd's v. Webb, 156 F. Supp. 2d 632 (N.D. Tex. 2001),
aff'd, 303 F.3d 325 (5th Cir. 2002) ... 26
Stripling v. Jordan Prod, Co., 234 F.3d 863 (5th Cir. 2000) ... 20
Welch v. Celotex Corp. 951 F.2d 1235 (11th Cir. 1992) ... 5
Wouters v. Martin County, Fla., 9 F.3d 924 (11th Cir. 1993) ... 14
WSB-TV v. Lee, 842 F.2d 1266 (11th Cir. 1988) ... 17
Statutes
28 U.S.C. ¤ 1332(a)(2) ... 1
28 U.S.C. ¤ 291 ... 1
O.C.G.A. ¤ 9-12-110 (1993), et seq ... 16
O.C.G.A. ¤ 9-12-114(5) (1993) ... 15, 16, 20
*v Rules
Fed. R. Civ. P. 15(a) ... 14, 19
Fed. R. Civ. P. 56(c) ... 16
*1 STATEMENT OF JURISDICTION
The United States District Court had jurisdiction pursuant to 28
U.S.C. ¤ 1332(a)(2) in that the Plaintiff, The Society of Lloyd's
("Lloyd's"), is a citizen of a foreign state, being a corporation
incorporated under the laws of England and having its principal place of
business in London, England; and the Defendants are all citizens of Georgia.
The amount in controversy between the Plaintiff and each Defendant (exclusive
of interest and costs) exceeds $75,000.
This Court has jurisdiction pursuant to 28 U.S.C. ¤ 291 in that
this is an appeal from a final decision of the United States District Court for
the Northern District of Georgia, Atlanta Division. On April 23, 2003, the
District Court entered its order granting summary judgment for the Plaintiff,
and disposing of the other issues before it. [R. 4-37-1.] A final judgment was
entered by the District Court on June 26, 2003. [R. 4-39-1.] The Defendants
timely filed their Notice of Appeal on July 25, 2003. [R. 4-40-1.]
*2 STATEMENT OF THE ISSUES
1. Did the District Court abuse its discretion in denying
Appellant Manning's motion to amend his answer to assert a fraud on the court
defense, ruling that such a defense was "futile," where
well-established federal law, not acknowledged by the District Court, holds
that federal courts have "inherent power" to deny relief to a
plaintiff who comes before the court with "unclean hands," having
obtained a prior judgment as a result of fraud on U.S. courts?
2. Did the District Court abuse its discretion in granting Lloyd's
motion for summary judgment, and denying Appellant Manning motion to compel
discovery, where Lloyd's refused to answer any discovery requests concerning
Manning's fraud on the court defense, which is a valid defense recognized by
well established federal law?
*3 STATEMENT OF THE CASE
A. Course of Proceedings and Disposition in the Court Below
Lloyd's brought this diversity action under Georgia law to enforce
and collect judgments obtained in England against Defendants Julius Peek
Garlington [FN1] and Glenn Wayne Manning, individuals who invested in Lloyd's
(known as "Names"). The judgments arise out of the most catastrophic
insurance loss in history. The judgments also are a result of a
well-documented, but as yet unlitigated, fraud scheme by Lloyd's, a scheme Time
magazine called "the greatest swindle ever" and "one of the
greatest commercial and political crimes of the 20th Century." [R.
3-23-121.]
FN1. On
or about October 16, 2003, a Suggestion of Death was filed with the Eleventh
Circuit concerning Appellant Julius Peek Garlington. In an order entered on
November 5, 2003, this Court stayed the appeal "for a period of sixty (60)
days in order to allow a personal representative to be appointed and to move
for substitution as a party to this appeal." No personal representative
was substituted as a party for Appellant Garlington in this appeal, and as a
result, this Court dismissed Appellant Garlington's appeal in an order entered
January 7, 2004.
Appellant Manning and other Names had compelling fraud defenses to
Lloyd's claims brought against them in England. As a result of Lloyd's
fraudulent scheme, however, which included knowing misrepresentations to
American courts, Appellant Manning was unable to assert such defenses.
Moreover, in reaching the judgments that Lloyd's now seeks to enforce, the
English courts prevented him from raising any affirmative defenses, precluded
him from challenging the *4 existence or amount of the alleged underlying
liability, and bound him to an unconscionable contract. Because Georgia law
permits courts to enforce English judgments only if they were obtained in the
absence of fraud and in accordance with due process and public policy, and
because federal courts have the "inherent power" to decline to grant
relief to a party if it seeks to take advantage of a prior judgment obtained on
the basis of fraud on other U.S. courts, the District Court erred in granting
Lloyd's motion for summary judgment and denying Appellant Manning's motion to
assert a fraud on the court defense and to seek discovery against Lloyd's to support
that defense.
By refusing to answer a single interrogatory or to produce any
documents in response to any document request, Lloyd's prevented Appellant
Manning from developing an appropriate legal and factual record on which the
District Court could make an informed decision about whether the English
judgments should be enforced in Georgia. In opposing Lloyd's motion for summary
judgment, Manning made a modest alternative request: Either that the Court deny
Lloyd's motion for summary judgment because there are disputed issues of fact
or, alternatively, that the Court permit a reasonable period of time to conduct
discovery under Federal Rule of Civil Procedure 56(f) before making a final
ruling on this motion. [R. 3-23-30.]
*5 Nevertheless, in an order dated April 23, 2003, the District
Court (The Honorable G. Ernest Tidwell) entered its order granting summary
judgment for Lloyd's, denying Appellant Manning's motion to compel discovery
against Lloyd's and a separate motion to amend his answer to assert a fraud
defense and to extend the discovery period. [R. 4-37-1.] As a result of the
District Court's summary judgment order, a final judgment was entered against
Manning in the amount of $137,583.90. [R. 4-39-1.] This appeal then followed.
[R. 4-40-1.]
B. Statement of Facts
Since this is an appeal from the entry of summary judgment,
"the record evidence and all inferences therefrom [must be reviewed] in
the light most favorable to the non-moving party," in this case Appellant
Manning. Jones v. City of Columbus, Georgia, 120 F.3d 248, 251 (11th Cir.
1997); accord, Welch v. Celotex Corp. 951 F.2d 1235, 1237 (11th Cir. 1992).
1. Lloyd's Implements Its Reconstruction and Renewal Plan.
Lloyd's regulates an international insurance market, located in
England, and Names underwrite policies and syndicates. As a condition of
membership in Lloyd's, Names were required to enter into certain agreements
governing membership of and underwriting in Lloyd's. This agreement also
contained choice of forum and choice of law clauses, wherein Lloyd's contends
that American Names agreed.to litigate disputes in the United Kingdom under
British law.
*6 In the late 1980s and early 1990s, many Lloyd's syndicates
began to incur heavy losses as a consequence of so-called "long-tail"
asbestos, pollution, and health hazard claims, as well as natural and man-made
disasters such as Hurricane Hugo, Pan American Flight 103, and the Exxon Valdez
fiasco. See Alien v. Lloyd's, No.3:96CV522, 1996 WL 490177, at *7 (E.D. Va.
August 23, 1996), rev'd. Alien v. Lloyd's of London, 94 F.3d 923 (4th Cir.
1996). Beginning in 1986, Lloyd's and its insiders in the United Kingdom who
were aware of the impending tidal wave of new claims passed along the liability
for claims of this sort to new Names, and especially new Names in the United
States, like Manning, who were completely unaware of the situation. In doing
so, Lloyd's knowingly and fraudulently shifted to the new Names the risks which
were underwritten by earlier policies. See id. The heavy losses and resulting
extensive litigation by Names against various members of the Lloyd's markets
created a serious threat to the continued existence of Lloyd's and to the
insurance market it comprises. See id.
As a result of crushing losses and extensive litigation by Names,
on or around December 6, 1995, Lloyd's passed its Reconstruction and Renewal
Byelaw (the "R&R byelaw"), which under the law in the United
Kingdom is entitled to the force and effect of law. [R. 3-21-91.] In connection
with this R&R byelaw, in July 1996, Lloyd's revealed to Names a
"reconstruction and renewal" plan ("R&R plan"). As part
of that plan, a new reinsurance company, Equitas Reinsurance, Ltd. *7
("Equitas") was created as a vehicle to extract additional sums from
the Names by reinsuring all remaining liabilities for all Lloyd's syndicates
for periods prior to 1993, and making reinsurance into Equitas (and payment of
the premium therefore) mandatory for all Names. [R. 1-1-8.]
Under the R&R plan, Names who wished to resign their
membership in Lloyd's would be able to do so only upon payment of outstanding
liabilities and an "Equitas Premium" consisting of an amount charged
to Names. [Id.] The R&R Plan also contained an offer of settlement. Any
Name who did not accept the settlement offer, but rather chose to litigate
liability on the underlying obligation, was required to pay the full amount of
his outstanding underwriting obligations, including the Equitas Premium.
Initially, the deadline for acceptance of the settlement offer was August 28, 1996.
2. Lloyd's Makes Misrepresentations to United States Courts and
American Names.
Faced with having to make an irrevocable election respecting their
investments, other similarly-situated Names brought claims against Lloyd's
under the United States securities laws to compel Lloyd's to disclose more
financial information about the R&R plan and to prohibit Lloyd's from
forcing Names to make an irrevocable election respecting their investments by
the established deadline. See, e.g. Alien v. Lloyd's, No. 3:96CV522, 1996 WL
490177 (E.D. Va. August 23, 1996), rev'd. Alien v. Lloyd's, 94 F.3d 923 (4th
Cir. 1996). Lloyd's *8 moved to dismiss the Names' complaints contending that
Names had agreed to litigate all disputes relating to the Lloyd's market in the
United Kingdom under British law. See, e.g. id. Through their membership in the
American Names Association (the "ANA"), defendants Garlington and
Manning monitored these types of lawsuits. [R. 3-23-61, -73.]
To avoid having to make any additional disclosures and, ultimately,
to secure judgments against Names, Lloyd's made misrepresentations directly to
American courts, and thus indirectly to American Names, such as Appellant
Manning. Specifically, in Alien. Lloyd's represented that even if the District
Court for the Eastern District of Virginia enforced the forum selection
clauses, all Names would have adequate remedies and a fair day in court in
England. For example, Lloyd's counsel, Harvey Pitt, made the following factual
representations in the Alien case:
By Harvey Pitt:
If [Mr. Leeds, an Alien plaintiff and U.S. Name] believes his
members' agent has not been responsive to his request for demands, his members'
agent is his fiduciary, and he has a remedy. He's not powerless. In fact, his
remedy in England is far better than any remedy he has in the United States. He
doesn't have to prove fraud in the U.K. He has to prove negligence. That's a
significant distinction.
*9 By Harvey Pitt:
But the notion that anybody would be giving up rights that they
have in this country is absolutely wrong. And that's a point I want Your Honor
to understand because, in reality, the law in the United Kingdom is vastly
superior, in many respects, to the law in the United States for this case.
By Harvey Pitt:.
And what I am saying to this court is, I think you can find at
least the same degree of protection [for U.S. Names], in my view substantially
better [protection], than you could find [in the U.S.].
[R. 3-23-79, -80, -82.] Additional examples of such
representations are included in the record. [R. 3-23-78.]
Counsel for Lloyd's made these factual misrepresentations to the
Court in the Alien case on the basis of various affidavits that Lloyd's had
submitted in that case and in other cases around the country. These affidavits
from British solicitors ¥ generally described the types of claims and remedies
that Names could pursue against Lloyd's and others in the United Kingdom. [R.
3-23-85, - 92, -103, -107.] Neither Lloyd's nor its witnesses disclosed the
significant limitations and restrictions placed on any Name's effort to obtain
legal redress against Lloyd's in the United Kingdom as a result of the R&R
byelaw enacted in December 1995. The full extent of these restrictions were
unknown to Appellant Manning until October 1996. [R. 3-23-73, -75.]
*10 In Alien, relying upon Lloyd's misrepresentations, both the
district court and the Fourth Circuit held that "[Names] would not be
effectively 'denied their day in court' were they forced to present their
claims in front of an English tribunal." Alien, 94 F.3d at 928. Manning
likewise relied upon Lloyd's assurances that he would receive a fair day in
court in England and therefore refused Lloyd's settlement offer and declined to
join Equitas. [R. 3- 23-73.] It was not until shortly after the deadline for
acceptance of the settlement offer had expired and the American courts had
dismissed Names' complaints, that Lloyd's finally revealed its plan to prohibit
Names from challenging the amounts Lloyd's claimed Names owed and to severely
restrict the Names' remedies. [R. 3-21-93; R. 3-23-65, -66, -73, -75.]
Appellant Manning also monitored cases similar to the Alien case
and believes that Lloyd's defrauded other United States courts as well. [R.
3-23-65, -66, - 73]. Other U.S. courts, including this Court, held, based upon
Lloyd's representations, that the forum selection provisions in the Names'
contracts were valid and enforceable, notwithstanding the anti-waiver
provisions of the U.S. securities laws, because the Names would have adequate
remedies in England. See, e.g., Lipcon v. Underwriters at Lloyd's, London, 148
F.3d 1285, 1299 (11th Cir. 1998) ("[T]he available remedies and potential
damage recoveries suffice...."); Richards v. Lloyd's of London, 135 F.3d
1289, 1296 (9th Cir. 1998) ("We *11 disagree with the dramatic assertion
that '[t]he available English remedies are not adequate substitutes for the...
American securities law."); Havnsworth v. The Corp., 121 F.3d 956, 969
(5th Cir. 1997) ("English law provides a variety of protections for fraud
and misrepresentations in securities transactions."); Shell v. R.W.
Sturge, Ltd., 55 F.3d 1227, 1231 (6th Cir. 1995) ("We agree that
plaintiffs have remedies which they can pursue in England"); Bonny v.
Society of Lloyd's, 3 F.3dl56, 161 (7th Cir. 1993). cert. denied, 510 U.S. 113
(1994) ("[W]e are satisfied that several remedies in England vindicate
plaintiffs' substantive rights...."); Robeyv. Corp. of Lloyd's, 996 F.2d
1353, 1366 (2d Cir. 1993) ("[W]e are convinced that there are ample and
just remedies under English law."), cert. denied, 510 U.S. 945 (1993);
Rilev v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 958 (10th Cir.
1992) ("Riley will not be deprived of his day in court."), cert.
denied, 506 U.S. 1021 (1992).
3. Lloyd's Deprives Names of Due Process and Obtains Judgments
Against Them.
In September 1996, Appellant Manning refused Lloyd's settlement
offer and declined to join Equitas. Lloyd's, using powers granted only to
Lloyd's under English law, then appointed a "substitute agent" for
Manning and directed that agent to sign the so-called Equitas Reinsurance
Contract ("Equitas Contract") on their behalf, despite Manning having
explicitly stated that they did not want to enter into the Equitas Contract.
[R. 3-23-66, -73.]
*12 The Equitas Contract, which Lloyd's did not provide to
Appellant Manning until October 1996, contained two critical provisions. [R.
3-23-66.] One provision, known as the "conclusive evidence" clause,
provided that Names could not challenge the amount that Lloyd's claimed was
due. [R. 3-21-95; R. 3- 23-66, -73] Lloyd's did not disclose the existence of
this provision to Manning until October 1996. [R. 3-23-66, 73.] The other
provision, known as the "pay now, sue later" clause, provided that
the amounts purportedly due under the Equitas Contract had to be paid without
offset or counterclaim. [R. 3-21-94; R. 3-23-67 -74.] While Lloyd's offer of
settlement contained two brief, oblique references to a "pay now, sue
later" provision, Lloyd's did not disclose to Manning the language
contained in the Equitas Contract or the effect of the "pay now, sue
later" provision until October 1996. [R. 3-23-67, -75.]
Lloyd's subsequently filed suits in England against those Names,
who, like Garlington and Manning, failed to pay the amounts they purportedly
owed under the Equitas Contract that they refused to sign. [R. 3-23-68,-75.]
When Names attempted to assert the defense of fraud to Lloyd's
"contract" claims, the English court refused to hear that defense
based upon the "pay now, sue later" provision. [R. 3-21-95; R.
3-23-68, -75.] Were it not for this provision of the Equitas Contract,
Appellant Manning would have been able to plead by way of defense the
fraudulent misrepresentations made to him by Lloyd's. [R. 3-21-95.] He would
*13 also have been able to counterclaim or set-off against the amount claimed
by Lloyd's. [Id.] Moreover, the provision in the Equitas Contract that the
defendants should pay now and sue later was simply not feasible. [Id.] The
costs for instituting proceedings against Lloyd's, even as part of a grouping,
were substantial. [Id.] And for many of those Names who paid their Equitas
Premium under protest, there were insufficient funds remaining to enable them
to participate in litigation against Lloyd's. [Id.]
In addition, relying upon the "conclusive evidence"
clause, the English court awarded Lloyd's the full amount it sought without
permitting Names any discovery or cross-examination, despite substantial
evidence that Lloyd's could not correctly calculate the amount allegedly due
from Names. [R. 3-23-30, - 68, -75.] Thus, it was impossible for Appellant
Manning to know whether there was any manifest error within the underlying
documentation giving rise to the calculation of the Equitas Premium. [R.
3-23-68, -75.]
4. Lloyd's Refuses to Respond to Any Discovery and Seeks Summary
Judgment.
After Lloyd's commenced this case in the United States District
Court for the Northern District of Georgia seeking enforcement of the foreign
judgments, Appellant Manning served discovery on Lloyd's requesting information
that is directly relevant to Lloyd's claims and essential to establishing
Manning's affirmative defenses. In response, Lloyd's objected to all of the
discovery requests *14 and refused to answer even a single interrogatory or to
produce documents in response to any discovery requests. Having attempted to
confer with opposing counsel regarding these issues without success, Manning
filed a motion to compel discovery on the issues essential to his ability to
defend Lloyd's claims. [R. 3-21-1.] Thus, Lloyd's prevented Manning from
discovering evidence that not only would establish his affirmative defenses,
but also would at least establish a genuine issue of material fact. In
addition, Manning also sought leave of Court to raise formally the affirmative
defense of fraud and to extend the discovery period. [R. 3-27-1.]
C. Statement of the Standard of Review
This Court reviews a district court's grant of summary judgment
under a de novo standard. Wouters v. Martin County. Fla., 9 F.3d 924, 928 (11th
Cir. 1993). A trial court's decision concerning discovery is reviewed under an
abuse of discretion standard. Fund for Animals. Inc. v. Rice, 85 F.3d 535, 542
(11th Cir. 1996). A district court's ruling on a party's request to amend a pleading
under Fed. R. Civ. P. 15(a) is also reviewed under an abuse of discretion
standard. Abramson v. Gonzalez, 949 F.2d 1567, 1581 (11th Cir. 1992).
SUMMARY OF THE ARGUMENT
The District Court abused its discretion in entering summary
judgment in favor of Lloyd's and against Appellant Manning and denying him the
opportunity *15 to assert a fraud on the court defense and to conduct effective
discovery of Lloyd's to support that defense. The District Court erroneously
reasoned that such a defense was "futile." However, fraud is a
specifically enumerated defense to an action under the Georgia Foreign Money
Judgments Recognition Act, O.C.G.A. ¤ 9-12-114(5) (1993); Hilton v. Guyot, 159
U.S. 113, 205-06 (1895). Moreover, federal courts have the "inherent
power" to deny relief to a party, and to protect the integrity of their
own procedures, where that party comes before the federal court with
"unclean hands," having obtained a prior judgment on the basis of
fraud on U.S. courts. Keystone Driller Co. v. General Excavator Co., 290 U.S.
240 (1933); Dixon v. Commissioner, 316 F.3d 1041 (9th Cir. 2003). It cannot be
said that, as a matter of law, Appellant Manning will not be able to develop
sufficient evidence during discovery to support a fraud on the court defense.
This Court should reverse the District Court's order and judgment,
and remand the case with instructions that Appellant Manning be given leave to
amend his answer to assert a fraud on the court defense and be given an
adequate time to conduct appropriate discovery before ruling on Lloyd's motion
for summary judgment.
ARGUMENT AND CITATION OF AUTHORITY
Lloyd's filed this action, and later moved for summary judgment,
seeking recognition and enforcement of the English judgments pursuant to
O.C.G.A. ¤ 9- *16 12-110 (1993), et seq., which codifies the Foreign Money
Judgment Recognition Act and traditional principles of international comity.
Appellant Manning answered and later sought to amend his answer to assert a
defense that the District Court should refuse to recognize the judgments
obtained by Lloyd's in England because they were procured as a result of
Lloyd's, fraudulent statements to American courts. See O.C.G.A. ¤ 9-12-114(5)
(1993); Hilton v. Guvot, 159 U.S. 113, 205-06 (1895). The District Court
declined to permit Manning to amend his answer to assert a fraud defense,
refused to permit him to conduct any discovery of Lloyd's, and granted Lloyd's
motion for summary judgment. [R. 4-37-2, -4, -10, -11.]
Summary judgment is appropriate "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law."
Fed. R. Civ. P. 56(c). The movant, in this case Lloyd's, bears the burden of
establishing the absence of a genuine issue of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986).
A. The District Court Abused Its Discretion in Refusing to Permit
Appellant Manning to Conduct Discovery Before Ruling on Lloyd's Summary
Judgment Motion.
This Court has held, consistently and repeatedly, that a party
opposing a motion for summary judgment must be permitted an adequate
opportunity to *17 conduct meaningful discovery before consideration of the
motion. "The law in this circuit is clear: the party opposing a motion for
summary judgment should be permitted an adequate opportunity to complete
discovery prior to consideration of the motion." Jones v. City of
Columbus, Ga., 120 F.3d 248, 253 (11th Cir. 1997); accord, Snook v. Trust Co.
of Ga. Bank, NA, 859 F.2d 865, 870-71 (11th Cir. 1988): WSB-TV v. Lee, 842 F.2d
1266, 1269 (11th Cir. 1988). In Snook, this Court stated:
The party opposing a motion for summary judgment has a right to challenge
the affidavits and other factual materials submitted in support of the motion
by conducting sufficient discovery so as to enable him to determine whether he
can furnish opposing affidavits .... If the documents or other discovery sought
would be relevant to the issues presented by the motion for summary judgment,
the opposing party should be allowed the opportunity to utilize the discovery
process to gain access to the requested materials .... Generally summary
judgment is inappropriate when the party opposing the motion has been unable to
obtain responses to his discovery requests.
859 F.2d at 870 (citations omitted; emphasis added).
In Snook, the district court had granted the defendants' motion
for summary judgment without first ruling on the plaintiff's motion to compel
discovery. This Court reversed the judgment and remanded the case for
reconsideration of the motion for summary judgment on an adequate record. Id at
870-71. Similarly, in Jones, supra, the district court had denied the plaintiffs'
motion to hold the *18 summary judgment motion in abeyance pending the
completion of discovery and instead granted the defendant's motion for a
protective order. 120 F.3d at 251. This Court held that the district court had
abused its discretion in deciding the summary judgment motion while blocking
the plaintiffs' efforts to gain the information they needed through the normal
discovery process. Id at 253. This Court remanded the case to allow the
plaintiffs a reasonable period of time to complete discovery before they were
required to respond to the defendant's motion for summary judgment. kL at 254.
In this case, under the precedent established above, the District
Court abused its discretion in refusing to permit Appellant Manning to conduct
any discovery before granting Lloyd's motion for summary judgment. The District
Court's sole reason for refusing to permit Appellant Manning to conduct
discovery was its conclusion that his proposed fraud defense was
"futile." [R. 4-37-4.] As shown below, however, it cannot be said, as
a matter of law, that the fraud defense that Appellant Manning seeks to raise
is or would be "futile," regardless of the facts developed in
discovery. The discovery that Appellant Manning sought to conduct - document
requests and depositions of Lloyd's representatives - would have allowed him to
obtain documents and testimony relevant to establishing his defense that
Lloyd's procured the English judgments through fraudulent statements to
American courts and therefore the judgments are not entitled to recognition *19
under Georgia law or international comity. This court should reverse the
District Court's order and judgment, and remand the case with instructions that
Appellant Manning be given an adequate time to conduct appropriate discovery
before ruling on Lloyd's motion for summary judgment.
B. Appellant Manning Is Entitled to Conduct Meaningful Discovery
in Order to Obtain Evidence That Lloyd's Judgments Obtained in English Court
Are Unenforceable Because They Were Procured by Fraud.
The District Court denied Appellant Manning's motion to amend his
answer to assert a fraud defense because the court concluded that such a
defense was "futile." [R. 4-31-4.] The District Court seemed to think
that Manning's defense was "futile" because this Court had already
held that "[t]he remedies available to defendants under English law were
adequate," [FN2] Manning "could have filed a separate suit in England
[asserting fraud] concurrently with the underlying action," and "[therefore,
defendants were not prevented from having a 'real contest1 of the suit."
rid.1 The District Court's reasoning was mistaken.
FN2.
Citing Lipcon v. Underwriters of Lloyd's, London, 148 F.3d 1285, 1297-99 (11th
Cir. 1998).
When a defendant seeks to amend his answer 20 days after he has
served it, the defendant may do so "only by leave of court or by written
consent of the adverse party." Fed. R. Civ. P. 15(a). However,
"[l]eave to amend should be freely given when justice so requires,"
id., and a motion to amend may be denied *20 only for such reasons as
"undue delay, undue prejudice to [the other parties], and futility of the
amendment." Abramson v. Gonzalez, 949 F.2d 1567, 1581 (11th Cir. 1992).
Here, the District Court denied Appellant Manning's motion to amend his answer
to assert a fraud on the court defense solely on the ground that the proposed
amendment was "futile."
A proposed amendment to a pleading is "futile" if the
pleading, as amended, "'would be subject to dismissal."' Galindo v.
ARJ Mut. Ins. Co., 203 F.3d 771, 777 (11th Cir. 2000) (quoting Jefferson County
Sch. Dist. No. R-l v. Moodv's Investor's Servs., Inc., 175 F.3d 848, 859 (10th
Cir. 1999). Other circuits have made it clear that "futility" in this
context means that the proposed amended pleading "would fail to state a
claim upon which relief could be granted." Stripling v. Jordan Prod. Co.,
234 F.3d 863, 872-73 (5th Cir. 2000); accord, Shane v. Fauver, 213 F.3d 113,
115 (3d Cir. 2000); Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128
F.3d 1074, 1085 (7th Cir. 1997); Glassman v. Computervision Corp., 90 F.3d 617,
623 (1st Cir. 1996).
In this case, it cannot be said as a matter of law that Appellant
Manning could not assert a fraud defense, regardless of the facts developed
during discovery. Fraud is listed as an available defense under Georgia's
Foreign Money Judgment Recognition Act, O.C.G.A. ¤ 9-12-114(5); see also Hilton
v. Guyot, 159 U.S. 113,205-06 (1995). The few cases considering the defense of
fraud to the *21 enforcement of foreign judgments generally have held that
"[t]he fraud must relate to matters other than issues that could have been
litigated and must be a fraud on the court." Bank of Nova Scotia v.
Tschabold Equip., Ltd., 754 P.2d 1290, 1294 (Wash. Ct. App. 1988) (citations
omitted); see also Fairchild. Arabatzis & Smith, Inc. v. Prometco. Co., 470
F. Supp. 610 (S.D.N.Y. 1979).
Apart from whether fraud is a separately enumerated defense under
the Georgia statute, federal courts have the "inherent power" to deny
relief to a party, and to protect the integrity of their own procedures, where
that party comes before the federal court with "unclean hands,"
having obtained a prior judgment on the basis of a fraud on U.S. courts. The
leading case in the federal courts concerning the defense of unclean
hands/fraud on the court is Keystone Driller Co. v. General Excavator Co., 290
U.S. 240 (1933). Keystone Driller filed a lawsuit in 1929 to enforce three
patents against General Excavator Company and Osgood Company. General Excavator
and Osgood raised the defense of unclean hands/fraud on the court based on
conduct engaged in by Keystone which had affected prior litigation in which
neither General nor Osgood had been parties.
Keystone's predecessor-in-interest, Downie, had filed an
application for a patent in 1921, despite knowledge of "prior use"
(which would have defeated the patent) by one Bernard Clutter. Downie obtained
Clutter's agreement to keep secret the details of the prior use and to suppress
the evidence. None of this had been *22 discovered during the first case:
Keystone Driller Co. v. Bvers Machine Co., 4 F. Supp. 159 (1929). Keystone
later sued General Excavator and Osgood, and relied on the 1929 Bvers decision
as a precedent in its suit against them. However, the arrangements with Downie
were discovered, and introduced into evidence in the second case. In the second
case, the U.S. Supreme Court held that because Keystone had been guilty of a
fraud on the courts in the first case, Keystone was not entitled to ask the
Court for relief in the second case which could not "fairly be deemed to
be unconnected" to the first case. 290 U.S. at 246. The Supreme Court
stated:
It is one of the fundamental principles upon which equity
jurisprudence is founded, that before a complainant can have a standing in
court he must first show that not only has he a good and meritorious cause of
action, but he must come into court with clean hands. He must be frank and fair
with the court, nothing about the case under consideration should be guarded,
but everything that tends to a full and fair determination of the matters in
controversy should be placed before the court. [Citations omitted.] The
governing principle is that whenever a party who, as actor, seeks to set the
judicial machinery in motion and obtain some remedy, has violated conscience,
or good faith, or other equitable principle, in his prior conduct, then the
doors of the court will be shut against him in limine; the court will refuse to
interfere on his behalf, to acknowledge his right, or to award him any remedy.
Id. at 244-45 (internal quotations omitted).
*23 The defendants were different in the two Keystone cases. The
only connections between the case of Keystone Driller Co. v. Bvers Mach. Co., 4
F. Supp. 159 (1929), arid the case of Keystone Driller Co. v. General
Excavator, 290 U.S. 240 (1933), were that the fraud-feasor was the same, and in
the second case it relied on the prior decision tainted by fraud.
Federal courts have consistently held that "fraud on the
court" is a "fraud that defiles the court, or is perpetrated by
officers of the court," and that a federal court has "inherent
power" to redress it, regardless of prejudice to the litigants. Dixon v.
Commissioner, 316 F.3d 1041, 1046 (9th Cir. 2003). Thus, in Dixon. the court
held that because counsel for the IRS had misled the court, there had been a
fraud on the court, and it explained:
Courts possess the inherent power to vacate or amend a judgment
obtained by fraud on the court, Toscano v. CIR, 441 F.2d 930, 933 (9th Cir.
1971), but that power is narrowly construed, applying only to fraud that
defiles the court or is perpetrated by officers of the court. When we conclude
that the integrity of the judicial process has been harmed, however, and the
fraud rises to the level of 'an unconscionable plan or scheme which is designed
to improperly influence the court in its decisions,' we not only can act, we
should.
316 F.3d at 1046 (quotation omitted; emphasis added); see also
Levander v. Prober (In re Levander), 180F.3d 1114, 1119 (9th Cir. 1999);
Intermagnetics Am., Inc. v. China Int'l Trust and Inv. Corp. (In re
Intermagnetics), 926 F.2d 912, 916-17 (9th Cir. 1999). The court in Dixon
further held:
*24 Here, the factual findings of the Tax Court support the
conclusion that a fraud, plainly designed to corrupt the legitimacy of the
truth-seeking process, was perpetrated on the trial court by Me Wade and Sims.
The Tax Court, however, applied the wrong law when it imposed a requirement
that taxpayers show prejudice as a result of the misconduct. ...
Prejudice is not an element of fraud on the court. ... Fraud on
the court occurs when the misconduct harms the integrity of the judicial
process, regardless of whether the opposing party is prejudiced. Alexander v.
Robertson, 882 F.2d 421, 424 (9th Cir. 1989). Furthermore, the perpetrator of
the fraud should not be allowed to dispute the effectiveness of the fraud after
the fact. ...
316 F.3d at 1046 (citations omitted).
The principle that "prejudice is not an element of fraud on
the court" is significant to a correct analysis of the law applicable in
this case. It shows that the purpose of the doctrine is to protect the
integrity of the court's own processes, regardless of the effect on the
individual litigants.
The issue here is not, as the District Court seemed to think,
whether this Court has previously held that the remedies available to Names in
litigation in England with Lloyd's were "adequate." [R. 4-37-4.] Nor
is the issue whether were Names permitted to litigate in England over the
enforceability of the disputed provisions of the R&R Byelaw. [Id.]
*25 Rather, the issue in this appeal is whether the District Court
should have permitted Appellant Manning to assert his fraud on the courts
defense, and to conduct meaningful discovery on that defense, or whether that
proposed defense is "futile" as a matter of law. As demonstrated
above, that defense without question is a valid defense, and it cannot be said
that Appellant Manning will be unable in discovery to develop any facts to
support it. This is especially true given the record evidence that Manning has
already cited to support that defense. Thus, for these reasons, the District
Court abused its discretion in declining to permit Appellant Manning to assert
that defense, or to conduct meaningful discovery on it, and the District
Court's judgment should be reversed and the case should be remanded for further
proceedings.
In Lipcon v. Underwriters of Lloyd's. London, 148 F.3d 1285, 1297
(11th Cir. 1998), this Court held, like the other circuit courts, that the
forum selection clause in the Names' contracts was valid and forceful,
notwithstanding the anti-waiver provisions of U.S. securities laws. This Court
reached the conclusion that "English law provides remedies adequate to
address the complaints of the aggrieved Names," id. at 1297, Appellant
Manning believes, based on affidavits and other evidence submitted by Lloyd's.
This Court also relied on other circuit court decisions, similarly based on
Lloyd's affidavits and representations, holding the same thing. See, e.g.
*26Bonny v. Society of Lloyd's, 3 F.3d 156, 162 (7th Cir. 1993), cert. denied,
510 U.S. 113 (1994); Robev v. Corporation of Lloyd's, 996 F.2d 1353, 1362 (2d
Cir.), cert. denied, 510 U.S. 945 (1993); Riley v. Kingsley Underwriting Agencies,
Ltd., 969 F.2d 953, 958 (10th Cir.), cert. denied, 506 U.S. 1021 (1992).
However, neither Lipcon or the other cases considered or addressed the adequacy
of the Names' remedies in light of the disputed provisions in the R&R
Byelaw, which were unknown at the time. Moreover, in this case, Appellant
Manning seeks the opportunity to conduct meaningful discovery in order to
establish that this Court in Lipcon and the other circuits reached their
conclusion about the adequacy of the Names' remedies in England based upon
fraudulent misrepresentations or omissions made to U.S. courts in those cases.
It is true that several other published decisions have affirmed
judgments in favor of Lloyd's and against American Names enforcing English
judgments. See, e.g., Soc'v of Lloyd's v. Turner, 303 F.3d 325 (5th Cir. 2002);
Soc'vof Lloyd's v. Ashenden, 233 F.3d 473 (7th Cir. 2000); Soc'v of Lloyd's v.
Mullin, 255 F. Supp. 2d 468 (E.D. Pa. 2003); Soc'v of Lloyd's v. Webb, 156 F.
Supp. 2d 632 (N.D. Tex. 2001), aff'd, 303 F.3d 325 (5th Cir. 2002). However,
none of these cases considered Appellant Manning's fraud on the court defense
and, of course, that issue was not litigated in England.
*27 CONCLUSION
For the reasons stated above, the Court should reverse the
District Court's order granting Lloyd's motion for summary judgment and remand,
with instructions that Defendant Manning be allowed full discovery and trial.