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September 26, 1991


Joan B. Gottschall, United States Magistrate.

The opinion of the court was delivered by: GOTTSCHALL

This matter comes before the court on plaintiffs' motion for a preliminary injunction to enjoin The Society of Lloyd's ("Lloyd's") from drawing upon funds secured by letters of credit posted by plaintiffs and to enjoin the bank defendants from releasing such funds. The injunction is sought principally to preserve the availability of the funds in question to satisfy any judgment plaintiffs may recover in the underlying suit, in which plaintiffs charge Lloyd's and associated defendants with violations of sections 12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. § 771(1), (2), section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission. Pendent claims of common law fraud, breach of fiduciary duty, common law negligence, breach of contract and violation of New Jersey's blue sky laws are also asserted.

 Defendants' opposition to plaintiffs' motion for a preliminary injunction has been limited to one issue: whether this court lacks jurisdiction over this controversy because the Agency Agreement and Members' Agent's Agreement, which define the parties' relationship, contain forum selection and choice of law clauses providing that English law shall govern all disputes and requiring the submission of all disputes to the exclusive jurisdiction of an English court or arbitrator. *fn1"

 The matter was heard on that basis on September 3 and 4, and was continued until September 6 for the limited purpose of allowing defendants to present proof of English law on the question of whether the plaintiffs, if required to litigate in England, would have a remedy. On September 5, in addition to materials concerning English law, defendants submitted material suggesting that plaintiffs' claims are time-barred. Defendants maintain that if plaintiffs' claims are time-barred under U.S. law, remitting plaintiffs to whatever remedies they may have under English law cannot injure them, since they cannot prevail in an American court. As the court indicated to the parties in its oral remarks, this issue was raised by defendants too late to allow for an adequate adversary presentation within the schedule the court had ordered. While the limitations issue is a substantial one, and is relevant to the critical issue of whether plaintiffs have shown a likelihood of success on the merits, the court does not believe it is any more relevant to the issue of whether plaintiffs' claims should proceed in this forum than is any other matter of defense. If defendants wish the court to consider this issue (or any other matter relevant to the question of whether plaintiffs have shown a likelihood of success on the merits), the court will hear those issues provided adequate notice to plaintiffs and a means of insuring the maintenance of the status quo during the time necessary for the development of an adequate record.

 The Supreme Court has made abundantly clear in a series of recent decisions that forum selection clauses and choice of law clauses in freely negotiated contracts should be enforced, absent strong public policy reasons to the contrary. See The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513 , 92 S. Ct. 1907 (1972) (clause in towage contract selecting English forum should be enforced even though an English court would likely give more weight than would an American court to contractual exculpatory clauses favoring German tug owner over American rig owner); Scherk v. Alberto-Culver Co., 417 U.S. 506, 41 L. Ed. 2d 270 , 94 S. Ct. 2449 (1974) (contractual agreement to arbitrate disputes before the International Chamber of Commerce in Paris under Illinois law should be enforced for the resolution of fraudulent misrepresentation claims under the 1934 Securities Exchange Act); Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985) (contractual provision requiring submission of disputes to arbitration in Japan, under Swiss law, held enforceable as to car dealer's Sherman Act defense to breach of contract claims); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 104 L. Ed. 2d 526 , 109 S. Ct. 1917 (1989) (predispute agreement to arbitrate claims held enforceable as to claims arising under the 1933 Securities Act, overruling Wilko v. Swan, 346 U.S. 427, 98 L. Ed. 168 , 74 S. Ct. 182 (1953)). A key consideration in many of these decisions was the Court's view that in contracts touching on multiple countries and jurisdictions, forum selection and choice of law clauses eliminate significant uncertainties and serve important policy interests. See Carnival Cruise Lines, Inc. v. Shute, 113 L. Ed. 2d 622, U.S. , 111 S. Ct. 1522, 1527 (1991). As the Court stated in Mitsubishi, supra, "concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context." 473 U.S. at 629.

 Despite this strong commitment to the enforcement of forum selection and choice of law provisions in international contracts, the Supreme Court has consistently cautioned that such clauses should not be enforced if enforcement would cause injustice, unfairness or a violation of important American public policy interests. The Court's willingness to sustain forum selection provisions has depended on its determination, particularly in the case of claims based on American statutory rights, that resort to the contractually-agreed upon forum will provide a means for vindicating those rights. As the Court stated in Mitsubishi, "By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." 473 U.S. at 628. See also Rodriguez de Quijas, supra, 490 U.S. at 481.

 The difficulty presented by the instant case arises out of the special position of Lloyd's and its underwriters under English law. Plaintiffs have asserted that two statutes, the English Financial Services Act of 1986 and the Lloyd's Act of 1982, immunize Lloyd's and its underwriters from liability on plaintiffs' securities claims. Plaintiffs argue that if they are compelled to litigate in England, they will be barred from any redress against Lloyd's and its underwriters.

 The Financial Services Act ("FSA") appears on it face to be a comprehensive regulatory statute governing the securities industry. It contains various regulatory requirements and penalties. It also contains this provision:

 § 42 Lloyd's

 The Society of Lloyd's and persons permitted by the Council of Lloyd's to act as underwriting agents at Lloyd's are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyd's.

 Initially, it appeared to the court, as announced orally in open court on September 6, that this section would preclude securities actions against Lloyd's; Lloyd's was apparently exempt from regulation under the only securities legislation brought to the court's attention. Subsequent to that hearing, however, the Lloyd's defendants presented the affidavit of John Lewis Powell, an English barrister and Queen's Counsel, with a commercial law practice and expertise in the areas of financial services and professional negligence. Mr. Powell averred the following concerning the Financial Services Act:

 1) The Financial Services Act of 1986 ("the FSA") establishes a system of statute-backed self-regulation of the investment business. Under section 42 of the FSA, "The Society of Lloyd's and persons permitted by the Council of Lloyd's to act as underwriting agents at Lloyd's are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyd's." According to Mr. Powell, the rationale for the Lloyd's exemption is to avoid regulatory duplication, given that Lloyd's and Lloyd's underwriting agents are regulated under the Lloyd's Act of 1982. Nevertheless, certain provisions of the FSA are applicable to Lloyd's, specifically, sections 47, 56, 59 and 61.

 2) Section 47 creates criminal penalties for misleading statements made knowingly or recklessly; a reasonable belief that words or conduct would not create a misleading impression may be raised as a defense to a section 47 charge. There are geographical limitations on the reach of section 47, requiring in essence that the misrepresentation be made in or from the United Kingdom or that the affected person be in the United Kingdom.

 3) Section 56 of the FSA prohibits "unsolicited calls" and provides for various civil sanctions for the violation of its prohibitions.

 4) Section 59 allows the Secretary of State of Trade and Industry to issue a disqualification directive prohibiting the Society of Lloyd's and Lloyd's underwriting agents from employing persons judged to be unfit.

 5) Section 61 permits the court, on application of the Secretary of State, to enjoin the contravention or threatened contravention of sections 47, 56 or 59 by Lloyd's or Lloyd's underwriting agents. The section appears to include, among the authorized injunctions, remedial orders for past violations and various disgorgement, restitution and compensation orders.

 The Lloyd's defendants maintain that section 47 provides remedies similar to those provided by the American securities laws. This does not appear to be the case. Mr. Powell's affidavit indicates that section 47 provides for criminal penalties only. Moreover, given its geographical limitations, it is doubtful that section 47 would reach misrepresentations made in the United States to United States citizens. Section 61 would appear ...

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