United States of America v. Yemec, 2010 ONSC 1409

The United States of America et al. v. Yemec et al. [Indexed as: United States of America v. Yemec]

100 O.R. (3d) 394

2010 ONSC 1409

Ontario Superior Court of Justice,

Divisional Court,

Molloy J.

March 8, 2010

Conflict of laws -- Foreign judgments -- Enforcement -- Motion judge refusing to grant summary judgment enforcing Illinois judgment -- Motion judge finding that there was no genuine issue for trial on issues of jurisdiction, natural justice or public policy but that defendants had raised new defence of loss of opportunity to be heard -- Plaintiffs granted leave to appeal on basis that there was reason to doubt correctness of order -- "New defence" appearing to be identical to natural justice defence -- New defence requiring relitigation of Illinois action.

The plaintiffs brought a motion for summary judgment enforcing an Illinois judgment against the responding defendants. The motion judge refused to grant summary judgment based on his finding that the defendants had raised a genuine issue for trial capable in law of constituting a defence to the enforcement of the Illinois judgment: the loss of a meaningful opportunity to be heard. As that defence was novel, the motion judge determined that it should proceed to trial to be decided on a full evidentiary record. The plaintiffs brought a motion for leave to appeal.

Held, the motion should be granted.

There was reason to doubt the correctness of the order and the appeal involved matters of general importance justifying leave. The motion judge found that there was no genuine issue for trial on any of the three commonly recognized defences: jurisdiction, natural justice and public policy. However, it was difficult to determine how the "new defence" he articulated was different from the natural justice defence. The defendants alleged that they did not have sufficient financial resources to properly defend the Illinois action because of the plaintiffs' misconduct in the manner of obtaining ex parte orders in Canada which had the effect of shutting down the defendants' business. A trial on that issue would inevitably focus on what they could have done differently if they had more money or how that would have affected the result. The Ontario court would have to completely relitigate the Illinois action, an outcome which was undesirable and inconsistent with comity between nations. Further, the new defence could not be said to be narrow in scope, which is a requirement for the recognition of any new defences.

MOTION for leave to appeal.

Cases referred to Beals v. Saldhana, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, 2003 SCC 72, 234 D.L.R. (4th) 1, 314 N.R. 209, J.E. 2004-127, 182 O.A.C. 201, 39 B.L.R. (3d) 1, 39 C.P.C. (5th) 1, 113 C.R.R. (2d) 189, 127 A.C.W.S. (3d) 648; King v. Drabinsky (2008), 91 O.R. (3d) 616, [2008] O.J. No. 2961, 2008 ONCA 566, 295 D.L.R. (4th) 727, 168 A.C.W.S. (3d) 79, 58 C.P.C. (6th) 223, affg [2007] O.J. No. 2901, 159 A.C.W.S. (3d) 369 (S.C.J.) [Leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 418], consd Other cases referred to Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817, [1999] S.C.J. No. 39, 174 D.L.R. (4th) 193, 243 N.R. 22, J.E. 99-1412, REJB 1999-13279, 14 Admin. L.R. (3d) 173, 1 Imm. L.R. (3d) 1, 89 A.C.W.S. (3d) 777; [page395] Brownhall v. Canada (Ministry of National Defence) (2006), 2006 7505 (ON SC), 80 O.R. (3d) 91, [2006] O.J. No. 672, 146 A.C.W.S. (3d) 10 (S.C.J.); MacGregor v. Royal and Sun Alliance Insurance Co. of Canada, [2009] O.J. No. 3573 (S.C.J.); United States of America v. Cobb, [2001] 1 S.C.R. 587, [2001] S.C.J. No. 20, 2001 SCC 19, 197 D.L.R. (4th) 46, 267 N.R. 203, 145 O.A.C. 3, 152 C.C.C. (3d) 270, 41 C.R. (5th) 81, 81 C.R.R. (2d) 226, 49 W.C.B. (2d) 157; United States of America v. Yemec (2009), 2009 44418 (ON SC), 97 O.R. (3d) 409, [2009] O.J. No. 3546; United States of America v. Yemec (2005), 2005 8709 (ON SCDC), 75 O.R. (3d) 52, [2005] O.J. No. 1165, 196 O.A.C. 163, 12 C.P.C. (6th) 318, 131 C.R.R. (2d) 312, 138 A.C.W.S. (3d) 156 (Div. Ct.), affg (2003), 2003 23436 (ON SC), 67 O.R. (3d) 394, [2003] O.J. No. 3863, 233 D.L.R. (4th) 169, [2003] O.T.C. 877, 125 A.C.W.S. (3d) 1060 (S.C.J.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 62.02(4), (a), (b)

Glenn Hainey and Malcolm Ruby, for moving parties. David Wires, for responding parties.

MOLLOY J.: -- Introduction

Introduction

1The moving party plaintiffs ("United States") seek leave to appeal from one aspect of an order made by Belobaba J. dated August 26, 2009 [(2009), 2009 44418 (ON SC), 97 O.R. (3d) 409, [2009] O.J. No. 3546 (S.C.J.)], dismissing the plaintiffs' motion for summary judgment. The summary judgment motion sought enforcement of an Illinois District Court granting a permanent injunction and judgment for US$19 million against certain of the defendants (the "Yemec defendants"). The motion judge refused to grant summary judgment based on his finding that the Yemec defendants had raised a genuine issue for trial capable in law of constituting a defence to the enforcement of the Illinois judgment. That aspect of the August 26, 2009 order is interlocutory, hence this application for leave to appeal. The United States has appealed to the Court of Appeal with respect to other aspects of Justice Belobaba's order which are final in nature.

2Prior to October 2002, the Yemec defendants had been engaged in the telemarketing and sale of Canadian lottery tickets to residents of the United States. On September 30, 2002, the United States Federal Trade Commission commenced proceedings against the Yemec defendants in Illinois alleging unfair and deceptive trade practices in the selling of the lottery tickets and violations of United States criminal law. On October 3, 2002, the United States commenced the within proceedings in Toronto and applied ex parte for injunctive relief. Based on the material filed by the United States, Nordheimer J. issued a [page396] Mareva injunction freezing all of the assets of the Yemec defendants and an Anton Pillar order authorizing the seizure of their books and records. Both were executed the next day.

3One year later, the Mareva injunction and the Anton Pillar orders were set aside by Gans J. [(2003), 2003 23436 (ON SC), 67 O.R. (3d) 394, [2003] O.J. No. 3863 (S.C.J.)] on the grounds of: (i) standing; (ii) material non-disclosure by the United States; (iii) no strong prima facie evidence of fraud; and (iv) no evidence of risk of flight or dissipation of assets. The appeal by the United States from that decision was dismissed by the Divisional Court on March 25, 2005 [(2005), 2005 8709 (ON SCDC), 75 O.R. (3d) 52, [2005] O.J. No. 1165 (Div. Ct.)].

4One of the other issues before Belobaba J. was the Yemec defendants' entitlement to damages pursuant to the undertaking given by the United States at the time the ex parte orders were obtained. The motion judge found that Yemec was entitled to damages and directed an immediate inquiry to determine the quantum of those damages. That aspect of his order has been appealed to the Court of Appeal.

The Issue Upon Which Leave Is Sought

The Issue Upon Which Leave Is Sought

5The sole issue upon which leave is sought is the determination of the motion judge that the Yemec defendants had raised a triable issue as to the enforceability of the Illinois judgment.

6The leading decision on the enforceability of foreign judgments is Beals v. Saldhana, 2003 SCC 72, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, which recognized three traditionally accepted defences to the enforcement of foreign judgments -- jurisdiction, natural justice or public policy. The motion judge accepted the United States' argument that there was no genuine issue for trial on any of these three commonly recognized defences. However, the motion judge noted that the Supreme Court of Canada stated in Beals that the list of available defences was not closed. The motion judge then went on to hold that the Yemec defendants had raised a triable issue with respect to a new defence, which he referred to as "the loss of a meaningful opportunity to be heard". The motion judge recognized that the new defence must be different in scope and content from the traditional natural justice defence (which he had found not to be available on the facts). However, he ruled that if the defendants' focus was on the oppressive way the United States conducted its Illinois litigation and its Canadian litigation, as opposed to the process and procedures of the foreign court itself, this would constitute a sufficient distinction to permit the defence to proceed. Given that the defence is novel, the motion judge determined that it should [page397] proceed to trial to be ultimately decided on a full evidentiary record rather than on a summary motion.

7The United States seeks leave to appeal from this recognition of the possibility of a new defence based on the loss of a meaningful opportunity to be heard and the finding that the defendants had demonstrated genuine issues for trial on whether the defence was met. It argues that both branches of both tests under rule 62.02(4) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] are met: i.e., that there are conflicting decisions on the issue and it is desirable that leave be granted (rule 62.02(4)(a)), and that there is reason to doubt the correctness of the order and the appeal involves matters of general importance justifying leave (rule 62.02(4) (b)).

Analysis

Analysis

8In my view, the test for leave is met under rule 62.02(4) (b) (reason to doubt correctness). To meet the test for leave, it is not necessary for the moving party to show that the decision of the motion judge is actually wrong. It is sufficient that I be satisfied that the correctness of the decision is open to "very serious debate": Brownhall v. Canada (Ministry of National Defence) (2006), 2006 7505 (ON SC), 80 O.R. (3d) 91, [2006] O.J. No. 672 (S.C.J.); MacGregor v. Royal and Sun Alliance Insurance Co. of Canada, [2009] O.J. No. 3573 (S.C.J.).

9It may be the case that the Yemec defendants can establish a legally valid defence to the enforcement of the Illinois judgment that goes beyond the defences recognized in Beals. However, I have serious reservations that the new defence of the denial of a "meaning opportunity to be heard", as articulated by the motion judge, can possibly suffice.

10The main difficulty I have with the reasoning of the motion judge is in determining how the "new defence" he articulated is different from the natural justice defence traditionally available as recognized in Beals and on which he held the defendants had failed to demonstrate a genuine issue for trial. The right to be heard is one of the cornerstones of natural justice. A right to be heard that is not meaningful would not comply with the traditional test for natural justice: Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817, [1999] S.C.J. No. 39, at paras. 30 and 32. Therefore, the addition of the word "meaningful" does nothing to change the nature of the test already recognized in Beals.

11In King v. Drabinsky, the defendants sought to resist enforcement of a U.S. judgment based on the argument that they were denied a "meaningful opportunity to be heard" [page398] because of parallel civil and criminal proceedings also ongoing in Canada and the fact that the criminal charges in Canada made it impossible (or inadvisable) for them to travel to the United States to testify on their own behalf. Wilton-Seigel J. held that this did not constitute a new defence under Beals. That decision was upheld by the Court of Appeal, which ruled that "the considerations raised by the appellants under the proposed new category are the same considerations as under the rubric of the natural justice defence": [2007] O.J. No. 2901, 159 A.C.W.S. (3d) 369 (S.C.J.), affd (2008), 2008 ONCA 566, 91 O.R. (3d) 616, [2008] O.J. No. 2961 (C.A.), at para. 41, leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 418. While that case can perhaps be distinguished from the case at hand in that there was no allegation that the conduct of the plaintiff contributed to the failure to defend the foreign proceeding, it is nevertheless an indication that "new defences" ought to be fundamentally different from those recognized in Beals.

12The factual underpinning which the motion judge found was capable of supporting this new defence relates to unfairness in the way the litigation proceeded or was conducted. The motion judge pointed to the defendants' allegation that the plaintiffs strategically engaged in conduct to prevent the defendants from being able to mount a proper defence to the Illinois action. This is largely based on the ex parte relief obtained in Canada which had the effect of shutting down the defendants' business and ruining them financially, while requiring them to fight litigation in both jurisdictions. As part of the execution of those ex parte orders, the United States seized all of the computers and all of the documents which the Yemec defendants needed to prepare their defence. The defendants allege that although the United States later offered to return the 260 boxes of material that had been seized, by then the defendants had no business premises available to them and no funds to rent space that would allow for the review of those documents. In essence, the Yemec defendants allege that the United States tied up their assets to such an extent that they were financially unable to defend themselves in the Illinois proceeding.

13However, in dealing with the natural justice defence and finding it to be unavailable to the Yemec defendants, the motion judge rejected these very arguments. In fact, these defendants did retain counsel in Illinois and their counsel did defend the action there, including defending the summary judgment motion that resulted in the judgment awarded against them. They also appealed that judgment to the Circuit Court. The Yemec defendants never sought a stay of the Illinois [page399] proceedings because of what was happening in Ontario or because of the financial constraints upon them as a result of the Ontario injunctions. Neither did they ever argue in the Illinois proceedings that they had not had a meaningful opportunity to be heard as a result of the conduct of the plaintiffs.

14In essence, what the defendants are alleging is that they did not have sufficient financial resources to properly defend the Illinois action and that the plaintiffs' misconduct caused that impecunious financial situation. Given the fact that they did defend the Illinois action, a trial on this issue will inevitably focus on what could have been done differently if they had more money and how that would arguably have affected the result. This would require the Ontario court to completely relitigate the Illinois action, an outcome that was recognized in Beals to be undesirable and inconsistent with comity between nations: Beals, at para. 44. Further, the new defence cannot be said to be narrow in scope, which the Supreme Court of Canada said in Beals was a requirement for the recognition of any new defences: Beals, at para. 41.

15In addition, there are in my view serious policy concerns about recognizing a defence that would amount to a finding that a person without vast financial resources is effectively denied natural justice.

16Accordingly, I believe that there is good reason to doubt the correctness of the motion judge's conclusion that the facts in this case could possibly support a new defence to the enforcement of the foreign judgment based on the loss of a meaningful opportunity to be heard.

17That said, I share what I sense to be the concern of the motion judge about the fundamental unfairness of a foreign litigant coming into our justice system, using improperly obtained extraordinary relief to cause the financial ruin of defendants here, and then capitalizing on that financial advantage by proceeding with litigation in the United States that those defendants were ill-equipped to defend due to their impoverishment. There may be a remedy with respect to that conduct, either through the damages action in relation to the undertaking or, perhaps, by imposing a stay of the enforcement action on the basis of abuse of process, similar to what was done in United States of America v. Cobb, [2001] 1 S.C.R. 587, [2001] S.C.J. No. 20, 2001 SCC 19. However, I have difficulty with the concept of tying such a remedy to the opportunity to be heard in the foreign litigation, particularly in circumstances where it could have been asserted in that litigation, but was not. [page400]

18Accordingly, I find that the first branch of the test under rule 62.02(4)(b) (reason to doubt correctness) is met. I turn then to consider whether this matter involves matters of such importance that leave to appeal should be granted.

19I have considered whether, notwithstanding my reservations about correctness, this matter should proceed to trial so that the new defence can be properly considered in the context of a full factual record. However, such a trial would be a lengthy and expensive proposition and would involve relitigating what was already decided in Illinois. Before embarking on that exercise, it seems to be that some clarification from a higher court as to the availability of the defence is preferable. Also, such clarification may serve to focus or narrow the issues, both factual and legal, that would be involved if the matter does proceed to trial.

20Further, this is a defence that has never been recognized by a court before. If the defence does exist, it involves a significant change in the rules for enforcement of foreign judgments and has an impact on comity between nations that goes far beyond the interests of the particular parties involved in this litigation. I am therefore of the view that this issue should be considered by a higher court before it proceeds further. In coming to that conclusion, I am mindful of the fact that these defendants are still being required to conduct expensive litigation without assets. However, there is little point in proceeding through an expensive trial only to find out at its conclusion that the "new defence" upon which it was based is not legally available.

Conclusion

Conclusion

21Therefore, leave to appeal is granted. Costs are left to the court hearing the appeal.