Society of Lloyd's v. Webb

Citation: Not availableDocket: 01-10773

Court: Court of Appeals for the Fifth Circuit; August 20, 2002; Federal Appellate Court

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In the consolidated appeals of Percy R. Turner and James Duncan Webb against the Society of Lloyd's, the Fifth Circuit affirmed the district court’s summary judgments recognizing foreign judgments obtained by Lloyd’s in an English court to collect underwriting obligations from the defendants, who are American members of Lloyd's insurance syndicates. 

The Society of Lloyd's operates under a regulatory framework established by several Parliamentary Acts (Lloyd’s Acts 1871-1982) and serves as the central administrative body for a historical insurance market in London where individual and corporate underwriters, referred to as "Names," assume insurance risks. The operational structure of Lloyd's includes syndicates managed by Managing Agents, with each Name having several liability rather than joint liability. 

To participate, Names must undergo a selection process that includes passing a means test, posting security, and formally acknowledging the risks of unlimited personal liability. Membership involves executing multiple contracts, including the General Undertaking with Lloyd’s and agreements with Member’s Agents and Managing Agents, all of which designate England as the dispute resolution forum and English law as governing law.

The financial crisis in the late 1980s and early 1990s, primarily due to toxic tort cases, led to significant losses for Lloyd’s underwriters, prompting the creation of the Reconstruction and Renewal (R&R) plan to provide reinsurance for pre-1993 liabilities through Equitas Reinsurance Ltd. This was essential for protecting the market's viability and ensuring policyholders' claims would be honored.

Equitas was partially funded by reinsurance premiums from the Names, with a primary aim of allowing the Lloyd’s market to operate without litigation delays. The Equitas policy included two significant provisions: a “pay now, sue later” clause preventing set-off claims against the Equitas premium until after payment and a “conclusive evidence” clause stating that Lloyd's calculation of the premium was conclusive barring manifest error. Approximately 95% of the Names accepted the offer and paid the premiums, while 5%, including Turner and Webb, did not. Lloyd's appointed a substitute agent for the non-accepting Names to sign the Equitas contract and paid their premiums, which Equitas assigned to Lloyd’s for collection.

In late 1996, Lloyd’s initiated collection proceedings against Turner and Webb in England. Turner participated, while Webb did not. Initially, the English courts ruled in favor of Lloyd’s regarding the appointment of substitute agents and the enforcement of the Equitas contract but allowed claims of fraudulent inducement against Lloyd's to proceed separately. The English Court of Appeal upheld this decision, denying further appeal by the Names. The Names later pursued their fraud claims in the Jaffray action, but neither Turner nor Webb joined this litigation. 

Lloyd’s sought summary judgment against the Names for the premium amount in the Fraser litigation, where they disputed the calculation under the “conclusive evidence” clause. The Queen’s Bench Division required extensive documentation from Lloyd's and allowed arguments regarding potential calculation errors. Ultimately, the trial court ruled against the Names, and the English Court of Appeal denied their appeal. On March 11, 1998, a summary judgment found Turner liable for approximately £71,000, while a default judgment against Webb was issued for about £66,000 on June 27, 1997.

In May 2000, Lloyd’s sought recognition of these English judgments in the Northern District of Texas, where both Names sought non-recognition. The district courts ruled in favor of Lloyd's, affirming the judgments' enforceability under the Texas Foreign Country Money-Judgment Recognition Act. Both Webb and Turner appealed, leading to their cases being consolidated for review.

Grants of summary judgment are reviewed de novo, following the same standards set forth by the district court, specifically under Rule 56(c) of the Federal Rules of Civil Procedure, which allows summary judgment only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In terms of foreign judgment recognition, Texas law applies due to the court’s diversity jurisdiction. The Uniform Foreign Country Money-Judgment Recognition Act governs the recognition of foreign judgments in Texas. When a foreign judgment is filed, the opposing party can contest its recognition through a motion for non-recognition, which Turner and Webb have pursued. 

A court may refuse to enforce a foreign judgment based on provisions of § 36.005 of the Civil Practice and Remedies Code if the judgment was issued under a system lacking impartiality or due process. The Texas Recognition Act necessitates that the foreign judgment must be rendered under a system that ensures impartial tribunals and due process, although it does not require strict adherence to U.S. standards of due process, only that the foreign proceedings be fundamentally fair. U.S. courts recognize the English legal system as fair and impartial, dismissing any claims to the contrary as unfounded. The district courts did not err in recognizing the judgments from Lloyd’s in England, especially given Webb's lack of participation in the English proceedings, which undermined his due process claims. Non-recognition grounds may be waived if a party had the opportunity to raise them in the foreign court but failed to do so. The central issue is not the fairness of Lloyd's actions but rather the authority of the English court in affirming Lloyd's right to engage agents to negotiate contracts binding the Names without their consent.

Webb and Turner have not demonstrated that the English court proceedings were unfair. The English courts applied standard English law, recognized the general freedom to contract out of the right of set-off, and confirmed that the conclusive evidence clause is typical. The Seventh Circuit has already determined that the English proceedings in question comply with the due process requirements of the Uniform Money-Judgment Recognition Act, and this court finds that reasoning persuasive.

Regarding Texas public policy, Webb and Turner contend that the district courts incorrectly enforced the English judgments, claiming they violate Texas public policy. Under the Uniform Foreign Money-Judgments Recognition Act, a foreign judgment may be disregarded if it stems from a cause of action that is highly contrary to Texas law. While due process grounds for non-enforcement fall under mandatory provisions, public policy arguments are discretionary. The court emphasizes that it’s the underlying cause of action leading to the judgment that must conflict with Texas public policy for non-recognition to be justified.

In the case of Southwest Livestock, Trucking Co. Inc. v. Ramon, the court ruled that a judgment based on a cause of action, which itself does not violate Texas public policy, must be recognized, even if the judgment might offend public policy. Webb and Turner do not claim that a breach of contract cause of action is contrary to Texas public policy. Instead, they argue that the judgments are inconsistent with Texas breach of contract law due to differing requirements for establishing a claim. Texas law necessitates proving four elements, while the English court required only proof of the contract's existence and the amount owed.

Appellants contend that the enforcement of English judgments should be denied due to differing legal standards between English and Texas courts. However, under the Texas Recognition Act, the relevant criterion for non-recognition of a foreign judgment is whether the cause of action contradicts Texas public policy, not the comparative standards of evaluation. The enforcement of a foreign judgment does not violate public policy simply because the laws of the foreign jurisdiction differ from those of Texas or are more favorable to the creditor. The court concluded that breach-of-contract claims do not conflict with Texas public policy, affirming the lower courts' decisions to recognize the English judgments. Additionally, the Appellants' claims regarding violations of Texas public policy concerning cognovit judgments and consumer protections were dismissed as irrelevant under the Texas Recognition Act. The judgments of the district courts were therefore affirmed.