Source: https://law.justia.com/cases/federal/appellate-courts/F3/94/923/602301/
Timestamp: 2019-09-19 20:59:25
Document Index: 131824411

Matched Legal Cases: ['§ 77', '§ 416', '§ 14', '§ 14', '§ 14', '§ 14']

Fed. Sec. L. Rep. P 99,306louis F. Allen; Carl K. Baker; Joyce P. Baker; Peter D.berrington; Oliver Birckhead; Florence Blaustein, Mary L.bray; T.k. Brooker; Donald J. Brooks; Joseph Callaghan;james Cassel; Terry G. Chapman; J.a. Clawson; John K.colvin; Fred B. Cox; John Rawlyn; Charles Crabtree;christopher P. Clup; Gordon C. Davidson; Rutherford Day;donald D. Doty; M.d.a. Emblin; Audrey Fisher; Donald B.gimbel; Kenneth J. Gimbel; Katherine Gooch; B.g.harrison; Yumiko Honda; Herbert W. Hoover, Iii; Margaretw. Jones; Donald K. Kent; E.r. Kinnebrew, Iii; Walter J.levy; Roland Ley; Suzanne Rhulen Loughlin; George C.lyman, Jr.; Charles P. Lyon; Michael L. Mcdermott; Robertt. Mcinerny; Arthur G. Michels; Walter P. Muskat; Walterw. Muskat; A.d. Pistilli; Robert A. Posner; Judson P.reis; Harry W. Rhulen; Walter A. Rhulen; J.o. Ricke; E.joy Rose; Mark S. Rose; A.f. Smith; Own B. Tabor; Allenm. Taylor; Trude C. Taylor; Karl Aronson; Joan R. Farrowand Jonathan M. Farrow for the Estate of Jesse M. Farrow;jack Fleck; Marilyn Franckx; Isabel L. Gallagher;jennifer A. Gallagher; Mary Claire Gallagher; Robert E.gallagher; Robert E. Gallagher, Jr.; Thomas J. Gallagher;thomas H. Green; Henry G. Hager; Thornton Hutchins; Vincea. Konen; C.c. Lucas; Herbert A. Middendorff; Robert S.denebeim; Dana Fisher, Sr.; William Alexander Florence;anne M. Gallagher; J. Patrick Gallagher; Mark E.gallagher; Mary Claire Gallagher As Executrix for John P.gallagher; Katherine Gallagher Goese; Allen S. Green;robert W. Hatch; Mary Clair G. Johnson; Thomas v. Leeds;guy A. Main; Eugene F. Middlekamp; Michael Montana;barbara H. Pisani; Richard B. Sanders; Jack R. Taylor;ken Noack; Robert L. Pisani; Larry D. Stroup; Neville G.williams, Plaintiffs--appellees, v. Lloyd's of London, an Unincorporated Association;corporation of Lloyd's, A/k/a Society and Councilof Lloyd's; Council of Lloyd's,defendants--appellants,andequitas Holdings Limited; Equitas Reinsurance Limited;equitas Limited, A/k/a Equitas or Equitas Group, Defendants,association of Lloyd's Members; Government of the Unitedkingdom of Great Britain and Northern Ireland;national Association of Insurancebrokers; California Insurancecommissioner, Amici Curiae, 94 F.3d 923 (4th Cir. 1996) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fourth Circuit › 1996 › Fed. Sec. L. Rep. P 99,306louis F. Allen; Carl K. Baker; Joyce P. Baker; Peter D.berrington; Oliver...
Fed. Sec. L. Rep. P 99,306louis F. Allen; Carl K. Baker; Joyce P. Baker; Peter D.berrington; Oliver Birckhead; Florence Blaustein, Mary L.bray; T.k. Brooker; Donald J. Brooks; Joseph Callaghan;james Cassel; Terry G. Chapman; J.a. Clawson; John K.colvin; Fred B. Cox; John Rawlyn; Charles Crabtree;christopher P. Clup; Gordon C. Davidson; Rutherford Day;donald D. Doty; M.d.a. Emblin; Audrey Fisher; Donald B.gimbel; Kenneth J. Gimbel; Katherine Gooch; B.g.harrison; Yumiko Honda; Herbert W. Hoover, Iii; Margaretw. Jones; Donald K. Kent; E.r. Kinnebrew, Iii; Walter J.levy; Roland Ley; Suzanne Rhulen Loughlin; George C.lyman, Jr.; Charles P. Lyon; Michael L. Mcdermott; Robertt. Mcinerny; Arthur G. Michels; Walter P. Muskat; Walterw. Muskat; A.d. Pistilli; Robert A. Posner; Judson P.reis; Harry W. Rhulen; Walter A. Rhulen; J.o. Ricke; E.joy Rose; Mark S. Rose; A.f. Smith; Own B. Tabor; Allenm. Taylor; Trude C. Taylor; Karl Aronson; Joan R. Farrowand Jonathan M. Farrow for the Estate of Jesse M. Farrow;jack Fleck; Marilyn Franckx; Isabel L. Gallagher;jennifer A. Gallagher; Mary Claire Gallagher; Robert E.gallagher; Robert E. Gallagher, Jr.; Thomas J. Gallagher;thomas H. Green; Henry G. Hager; Thornton Hutchins; Vincea. Konen; C.c. Lucas; Herbert A. Middendorff; Robert S.denebeim; Dana Fisher, Sr.; William Alexander Florence;anne M. Gallagher; J. Patrick Gallagher; Mark E.gallagher; Mary Claire Gallagher As Executrix for John P.gallagher; Katherine Gallagher Goese; Allen S. Green;robert W. Hatch; Mary Clair G. Johnson; Thomas v. Leeds;guy A. Main; Eugene F. Middlekamp; Michael Montana;barbara H. Pisani; Richard B. Sanders; Jack R. Taylor;ken Noack; Robert L. Pisani; Larry D. Stroup; Neville G.williams, Plaintiffs--appellees, v. Lloyd's of London, an Unincorporated Association;corporation of Lloyd's, A/k/a Society and Councilof Lloyd's; Council of Lloyd's,defendants--appellants,andequitas Holdings Limited; Equitas Reinsurance Limited;equitas Limited, A/k/a Equitas or Equitas Group, Defendants,association of Lloyd's Members; Government of the Unitedkingdom of Great Britain and Northern Ireland;national Association of Insurancebrokers; California Insurancecommissioner, Amici Curiae, 94 F.3d 923 (4th Cir. 1996)
US Court of Appeals for the Fourth Circuit - 94 F.3d 923 (4th Cir. 1996)
Argued Aug. 27, 1996. Decided Sept. 3, 1996
Since its seminal decision in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972), the Supreme Court has consistently accorded choice of forum and choice of law provisions presumptive validity, rejecting the "parochial concept" that "notwithstanding solemn contracts ... all disputes must be resolved under our laws and in our courts." Id. at 9, 92 S. Ct. at 1912; see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, --- U.S. ----, ----, 115 S. Ct. 2322, 2329, 132 L. Ed. 2d 462 (1995); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S. Ct. 1522, 1528, 113 L. Ed. 2d 622 (1991); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S. Ct. 3346, 3356, 87 L. Ed. 2d 444 (1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S. Ct. 2449, 2457, 41 L. Ed. 2d 270 (1974). But the presumption of enforceability that forum selection and choice of law provisions enjoy is not absolute and, therefore, may be overcome by a clear showing that they are " 'unreasonable' under the circumstances." The Bremen, 407 U.S. at 10, 92 S. Ct. at 1913. Choice of forum and law provisions may be found unreasonable if (1) their formation was induced by fraud or overreaching; (2) the complaining party "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) their enforcement would contravene a strong public policy of the forum state. See Carnival Cruise Lines, 499 U.S. at 595, 111 S. Ct. at 1528; The Bremen, 407 U.S. at 12-13, 15, 18, 92 S. Ct. at 1914-15, 1916, 1917.
By adopting a policy of full disclosure of relevant information to replace the doctrine of caveat emptor, the United States securities laws play a critical role in sustaining honest and efficient domestic capital markets. See, e.g., SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186-87, 84 S. Ct. 275, 280, 11 L. Ed. 2d 237 (1963). Indeed, the United States securities laws prohibit attempts to waive their disclosure requirements. See 15 U.S.C. §§ 77n, 78cc(a). But the question remains in this case whether the choice of forum and law clauses to which the Names agreed when entering the Lloyd's insurance market implicate the anti-fraud and disclosure policies that underlie the United States securities laws to the extent that those clauses cannot be enforced.
We do not believe that enforcing the parties' forum selection and choice of law provisions in this case will subvert the United States securities laws' policy of prohibiting fraud. British law not only prohibits fraud and misrepresentations as do the United States securities laws, but also affords Names adequate remedies in the United Kingdom. See Shell v. R.W. Sturge Ltd., 55 F.3d 1227, 1231 (6th Cir. 1995); Bonny v. Society of Lloyd's, 3 F.3d 156, 161 (7th Cir. 1993), cert. denied, 510 U.S. 1113, 114 S. Ct. 1057, 127 L. Ed. 2d 378 (1994); Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1365 (2d Cir.), cert. denied, 510 U.S. 945, 114 S. Ct. 385, 126 L. Ed. 2d 333 (1993); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 958 (10th Cir.), cert. denied, 506 U.S. 1021, 113 S. Ct. 658, 121 L. Ed. 2d 584 (1992). Under British law, the Names could bring claims based on the tort of deceit, breach of contract, negligence, and breach of fiduciary duty, and could obtain injunctive, declaratory, rescissionary, and restitutionary relief. See Shell, 55 F.3d at 1230-31. And " [t]he fact that an international transaction may be subject to laws and remedies different or less favorable than those of the United States is not a valid basis to deny enforcement." Riley, 969 F.2d at 958.
Moreover, we do not believe that Congress intended that the disclosure requirements of the United States securities law be exported and imposed as governing principles on markets conducted entirely in other countries simply because membership in such markets is solicited in the United States. See Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1334 (2d Cir. 1972) (finding language of Securities Exchange Act "too inconclusive" to find that "Congress meant to impose rules governing conduct throughout the world in every instance where an American company bought or sold a security"). " [C]onfronted with [a] transaction that on any view [is] predominantly foreign, [we] must seek to determine whether Congress would have wished the precious resources of United States courts and law enforcement agencies to be devoted to them rather than leave the problem to foreign countries." Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert. denied, 423 U.S. 1018, 96 S. Ct. 453, 46 L. Ed. 2d 389 (1975).
Although American courts have on occasion applied United States securities laws' anti-fraud provisions to predominantly foreign transactions, the "anti-fraud provisions of American securities laws have broader extraterritorial reach than American filing requirements." Consolidated Gold Fields PLC v. Minorco S.A., 871 F.2d 252, 262 (2d Cir. 1989). This is because "an interest in punishing fraudulent or manipulative conduct is entitled to greater weight than are routine administrative requirements." Restatement (Third) of the Foreign Relations Law of the United States § 416 cmt. a (1986).
To permit the Names to escape their agreements to be bound by the laws and rules of the British market just at a time when they face losses would also violate the most fundamental precepts of international comity. See Consolidated Gold Fields, 871 F.2d at 263 (" [A] court may abstain from exercising enforcement jurisdiction when the extraterritorial effect of a particular remedy is so disproportionate to harm within the United States as to offend principles of comity"). Imposing United States securities laws on this foreign market would directly contravene the very rules and regulations adopted in Britain for the creation and operation of the Lloyd's market to which the Names subscribed.
To determine whether Lloyd's Plan constitutes an "investment contract" subject to the requirements of the securities laws, we apply the test announced in SEC v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946). In Howey, the Supreme Court established that "an investment contract ... means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of [others]." Id. at 298-99, 66 S. Ct. at 1102-03. And the Court later instructed that the Howey test is to be applied with an eye to "the substance--the economic realities of the transaction--rather than the names that may have been employed by the parties." United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851-52, 95 S. Ct. 2051, 2060, 44 L. Ed. 2d 621 (1975).
Focusing on the substance of the Plan before us, we discern two components: the settlement offer and the reinsurance through Equitas. The settlement component satisfies none of the Howey factors and, therefore, cannot make the Plan a security. And, whatever else might be said about the Equitas component, it does not satisfy the third Howey factor; none of the Names can expect to receive profits from their participation in Equitas. Indeed, the Plan creates Equitas solely to reinsure and discharge Names' preexisting obligations, not to underwrite new risks for profit. While Names may receive rebates should Equitas' initial capitalization ultimately prove greater than needed to discharge the Names' outstanding liabilities, such rebates are not profits, but rather a return of capital. See Forman, 421 U.S. at 854, 95 S. Ct. at 2061. Furthermore, Equitas is forbidden by its Articles of Association from paying dividends, and Lloyd's has indicated that, in the unlikely event that it generates profits by investing Equitas' capital during its operation, Lloyd's would donate such profits to charity. Because Lloyd's is not "induc [ing] purchases [in Equitas] by emphasizing the possibility of profits" or offering "profits [from Equitas] ... in the form of capital appreciation or participation in earnings," Teague v. Bakker, 35 F.3d 978, 987 (4th Cir. 1994), cert. denied, --- U.S. ----, 115 S. Ct. 1107, 130 L. Ed. 2d 1073 (1995), we readily conclude that no part of the Plan qualifies as a security for purposes of the securities laws.
Section 14(a) embodies a policy of broad disclosure designed to protect the basic right of corporate suffrage. See J.I. Case Co. v. Borak, 377 U.S. 426, 431-32, 84 S. Ct. 1555, 1559-60, 12 L. Ed. 2d 423 (1964); see also Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381, 90 S. Ct. 616, 620, 24 L. Ed. 2d 593 (1970); H.R.Rep. No. 1383, 73d Cong., 2d Sess., at 13 (1934) ("Fair corporate suffrage is an important right that should attach to every equity security bought on a public exchange"). But not every communication from management to corporate shareholders amounts to solicitation under § 14(a). Sargent v. Genesco, 492 F.2d 750, 767 (5th Cir. 1974); see also Brown v. Chicago, Rock Island & Pacific R.R., 328 F.2d 122, 125 (7th Cir. 1964); see generally 4 Louis Loss & Joel Seligman, Securities Regulation 1952 (3d ed. 1990) (listing examples of communications not covered by § 14(a) rules). Rather, it is only when management seeks consent or authorization for actions "requiring such approval" that § 14(a) steps in to ensure that approval is given with full knowledge. Gaines v. Haughton, 645 F.2d 761, 775 (9th Cir. 1981), cert. denied, 454 U.S. 1145, 102 S. Ct. 1006, 71 L. Ed. 2d 297 (1982); see also Ash v. GAF Corp., 723 F.2d 1090, 1094 (3d Cir. 1983) (holding that "complainant must show that he suffered harm from the infringement of his corporate suffrage rights" to state a claim under § 14(a)); cf. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S. Ct. 2126, 2132, 48 L. Ed. 2d 757 (1976) (indicating that securities laws require accurate disclosure only of facts that would have assumed actual significance in a reasonable investor's decisionmaking).