Mancinelli et al. v. Royal Bank of Canada et al.

[Indexed as: Mancinelli v. Royal Bank of Canada]

Ontario Reports

Ontario Superior Court of Justice, Divisional Court,

Lederman, Kiteley and Doyle JJ.

April 16, 2018

141 O.R. (3d) 119 | 2018 ONSC 1844

Case Summary

Civil procedure — Discovery — Non-parties — Plaintiffs bringing proposed class action in Ontario against multi-jurisdictional defendants — Plaintiffs obtaining pre-certification ex parte order pursuant to 1782 of Title 28 of U.S. Code for subpoena against non-party for production of documents — Case management judge not erring in directing that plaintiffs were required to obtain authorization from Ontario court pursuant to rules 30.10 and/or 31.10 of Rules of Civil Procedure before taking any step in furtherance of subpoena — Plaintiffs failing to make full and fair disclosure to U.S. court of policies and procedures under Rules with respect to discovery of third parties — Plaintiffs not permitted to use 1782 to circumvent Rules — United States Code, 28 U.S.C. 1782 — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 30.10, 31.10. [page120]

The plaintiffs brought a proposed class action in Ontario against multi-jurisdictional defendants alleging that the defendants conspired to fix prices in the foreign exchange market by communicating with each other using electronic chatrooms hosted by Bloomberg, a non-party. They made an application in the United States District Court for the Southern District of New York for an order for pre-certification discovery against Bloomberg. They obtained an ex parte order pursuant to 1782 of Title 28 of the United States Code for a subpoena against Bloomberg for the production of transcripts of chatrooms of currency traders. The subpoena required Bloomberg to attend a deposition in New York to give testimony authenticating the documents in a schedule attached to the subpoena. The defendants moved successfully before the case management judge for an order directing that the plaintiffs obtain authorization from the Ontario Court pursuant to rules 30.10 and/or 31.10 of the Rules of Civil Procedure before taking any further step in furtherance of the subpoena. The plaintiffs appealed.

Held, the appeal should be dismissed.

The plaintiffs did not make full and fair disclosure to the U.S. court of the five elements of case management and of the policies and procedures under the Rules of Civil Procedure with respect to the discovery of third parties. They sought compelled discovery of a non-party by circumventing rules 30.10 and 31.10. The motion judge properly exercised the broad discretion in s. 12 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 with respect to the nature of pre-certification discovery of a non-party using American court process, and did not err in finding that the plaintiffs could not use 1782 to circumvent the Rules.

Cases referred to

Catucci v. Valeant Pharmaceuticals International Inc., [2016] Q.J. No. 8589, 2016 QCCS 3431 [Leave to appeal refused [2016] J.Q. no 10841, 2016 QCCA 1349, 2016EXP-2858, J.E. 2016-1575, EYB 2016-269603; In Re Application of Microsoft Corp., 428 F. Supp. 2d 188 (S.D.N.Y. 2006); Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 43, 2017 ONSC 87, 97 C.P.C. (7th) 121, 274 A.C.W.S. (3d) 485 (S.C.J.); Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 844, 2017 ONSC 1196 (S.C.J.); Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 6446, 2017 ONSC 7384 (S.C.J.); Peter v. Medtronic, Inc., [2010] O.J. No. 3056, 2010 ONSC 3777, 79 C.C.L.T. (3d) 26, 97 C.P.C. (6th) 392, 191 A.C.W.S. (3d) 429 (Div. Ct.); Phaneuf v. Ontario, [2009] O.J. No. 5618 (S.C.J.); Pro-Sys Consultants Ltd. v. Microsoft Corp., [2013] 3 S.C.R. 477, [2013] S.C.J. No. 57, 2013 SCC 57, 2013EXP-3511, J.E. 2013-1905, EYB 2013-228580, 450 N.R. 201, 345 B.C.A.C. 1, 50 B.C.L.R. (5th) 219, 45 C.P.C. (7th) 1, 364 D.L.R. (4th) 573, [2014] 1 W.W.R. 421; Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., 2002 63927 (ON SCDC), [2002] O.J. No. 1400, 212 D.L.R. (4th) 563, 159 O.A.C. 204, 20 C.P.C. (5th) 65, 18 C.P.R. (4th) 267, 113 A.C.W.S. (3d) 966 (Div. Ct.)

Statutes referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 12

Code of Civil Procedure, C.Q.L.R., c. C-25.01, art. 221

United States Code, 28 U.S.C. 1782

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 30.10, 31.10

APPEAL from an order of the motion judge. [page121]

Kirk M. Baert and Robert Gain, for appellants.

Matthew Milne-Smith and Natasha Lombardi, for Morgan Stanley Canada Limited and Morgan Stanley, respondents.

Donald Houston, for Credit Suisse Group AG, Credit Suisse Securities (USA) LLC, Credit Suisse AG and Credit Suisse Securities (Canada), Inc., respondents.

Allan Coleman and Robert Carson, for Royal Bank of Canada and RBC Capital Markets LLC, respondents.

Caitlin Sainsbury and Christine Muir, for Deutsche Bank AG, respondents.

[1] BY THE COURT: -- This is an appeal from the order made by Perell J. dated January 5, 2017[^1] in which he held that the appellants are required to obtain an order of the Superior Court before taking any step in furtherance of a subpoena issued on September 27, 2016 that had been authorized by a judge of the United States District Court for the Southern District of New York (the "U.S. court") as a result of an ex parte application under s. 1782 of Title 28 of the United States Code.[^2] For the reasons that follow, the appeal is dismissed.

Background

[2] The reasons for decision set out in detail the background to the class proceeding and the application by the appellants in the U.S. court. Briefly, in September 2015 in this court (the "Ontario court") the appellants commenced an action seeking certification of a proposed national class action against the defendants under the Ontario Class Proceedings Act, 1992.[^3] The appellants allege that the defendants conspired to fix prices in the foreign exchange market by communicating with each other directly using electronic chatrooms hosted by Bloomberg LP ("Bloomberg") to coordinate their trading strategies and exchange key confidential information. Bloomberg is a global provider of business and financial information. The defendants include 16 groups of financial institutions that carry on business in Canada, the United States, the United Kingdom, France, Switzerland, Germany and Japan. [page122]

[3] The appellants have reached settlements with six groups of defendants and the balance of the defendants contest certification. According to the appellants, in plea agreements entered into with the United States Department of Justice, several of the defendants admitted to participating in the electronic chatrooms. The respondents on this appeal are the defendants that have not settled.

[4] The appellants made an application in the United States District Court for the Southern District of New York for an order for pre-certification discovery against Bloomberg, a non-party. The application was supported by the declaration of Daniel Bach ("Bach declaration"), a member of Siskinds LLP, which is counsel to the appellants in the Ontario action and by a memorandum of law by Ralph Stone and Susan M. Davies, the appellants' New York counsel.

[5] On September 27, 2016, the appellants obtained an ex parte order pursuant to 1782 for a subpoena against Bloomberg (the "Bloomberg subpoena") for the production of transcripts of chatrooms of currency traders. The order authorized the appellants to take discovery of Bloomberg and permitted them to serve the Bloomberg subpoena for the production of documents listed in the application materials.

[6] The U.S. order was obtained pursuant to 28 U.S.C. 1782 (quoted at para. 12 of the decision) titled Assistance to Foreign and International Tribunals and Litigants Before Such Tribunals.

[7] On September 28, 2016, the Bloomberg subpoena was issued requiring Bloomberg to attend a deposition in New York on November 3, 2016 to give testimony authenticating the documents in the six-page schedule attached to the subpoena. On the same day, counsel for the appellants sent an e-mail to counsel for the respondents advising that the order had been issued. The e-mail attached a copy of the U.S. order and of the Bloomberg subpoena and it advised the respondents that they were receiving the material as a courtesy.

[8] The respondents objected and brought a motion before Perell J., the case management judge, supported by an affidavit of a law clerk at the firm representing one of the respondents. The appellants delivered a responding motion record that included a report dated November 28, 2016 from Dr. Michael Halberstam, a senior research fellow at Columbia Law School titled "U.S. Legal Proceedings Under 28 U.S.C. 1782 To Obtain Witness Testimony, Documents, or Other Forms of Evidence in the United States For Use In A Foreign Proceeding". In that report, Dr. Halberstam outlined the discretionary factors the court applies in a 1782 application. Dr. Halberstam was cross-examined. [page123]

[9] As indicated in para. 2 of the decision, the motion was for an order directing that the appellants, before taking any step in furtherance of the Bloomberg subpoena, seek and obtain authorization from the Ontario court pursuant to rules 30.10 and/or 31.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and provide notice to all named respondents.

Decision under Appeal

[10] The order made by the motion judge stated as follows:

THIS COURT ORDERS that the Plaintiffs are required to obtain an Order of this Court before the Plaintiffs, or their agents or representatives, or any other person acting at the Plaintiffs' request or on the Plaintiffs' behalf, take any step:

(a) in furtherance of a subpoena issued on September 27, 2016 by the United States District Court for the Southern District of New York to Bloomberg L.P.; or

(b) to acquire documents or any other evidence from non-parties through extra-jurisdictional procedures.

[11] The key conclusions reached by the motion judge were these.

[12] The appellants did not disclose to the U.S. court the five elements of case management and the relevant Rules of Civil Procedure that are essential (para. 15). The application contained no explanation for the bald statement that Bloomberg is not subject to the jurisdiction of the Ontario court. The motion judge took judicial notice that Bloomberg Canada TV station operated in Toronto and noted that its relationship with Bloomberg LP was not explained (para. 16).

[13] The Bach declaration was misleading and not full and fair disclosure of the policies and procedures under the Rules of Civil Procedure with respect to discovery of non-parties (para. 17). The memorandum of law by the appellants' New York counsel misleadingly described the policies and procedures under the Rules of Civil Procedure with respect to the discovery of non-parties (para. 19).

[14] With the exception of one decision that he distinguished, the motion judge noted that this was a case of first instance for Canadian and Ontario jurisprudence (para. 33).

[15] In paras. 39-43, the motion judge summarized the relevant Ontario rules that applied. In paras. 44--49, he held that discovery of non-parties was exceptional unless the criteria of the Rules of Civil Procedure have been satisfied.

[16] The motion judge held that what the appellants did was improper from the perspective of class action procedure in Ontario [page124] (para. 50) for four reasons. First, the appellants were not just gathering evidence. They sought compelled discovery that is strictly regulated by the Rules of Civil Procedure. Second, the appellants sought compelled discovery by circumventing rules 30.10 and 31.10. Third, the appellants circumvented the jurisprudence about class action procedure by seeking to obtain pre-certification discovery beyond the scope permitted under Ontario class action procedure. Fourth, the appellants did not provide accurate and complete disclosure to the U.S. court regarding four essential elements of case management, class proceedings and discovery (paras. 50-57).

[17] Confronted with non-compliance by the appellants, the motion judge held that the court had jurisdiction to do something about it because it was not unreasonable or unfair for the respondents to expect that the appellants would and should abide by the Rules of Civil Procedure (para. 58).

[18] In paras. 62-93, the motion judge reviewed relevant case law and, in paras. 94-104, he focused on the decision of the Quebec Superior Court in Catucci v. Valeant Pharmaceuticals International Inc.[^4]

[19] In reasons for decision released February 21, 2017,[^5] the motion judge awarded costs to the respondents that took into consideration his conclusion that the appellants' conduct, in attempting to circumvent the Rules that govern discovery of non-parties in class actions in Ontario, was improper in both its purposes and in its execution.

Issues and Standard of Review

[20] In their factum, the appellants describe the issues as follows:

(a) When can an Ontario court interfere with the exercise of an American court's subpoena power?

(b) When can an Ontario court enjoin a party from acting under the authority of an unappealed U.S. court order while at the same time refusing to apply the well-settled test for injunctive relief? [page125]

[21] The appellants assert that the decision of the motion judge resulted from a pure question of law and therefore the standard of review is correctness. They argue that the motion judge erred by

(a) finding that the Rules of Civil Procedure prevented the appellants from availing themselves of 28 U.S.C. 1782;

(b) resorting to judicial notice to support a critical jurisdictional finding;

(c) restraining the appellants without finding that the test for an injunction had been satisfied; and

(d) making serious and unwarranted criticisms of appellants' counsel.

[22] According to their factum, the respondents take the position that the issues raised are whether the motion judge appropriately determined that

(a) the appellants may not use 1728 to circumvent the Ontario Rules of Civil Procedure;

(b) the test for an anti-suit injunction did not apply; and

(c) the appellants' application to the U.S. court was misleading.

[23] The respondents agree that the standard of review with respect to the motion judge's findings on the use of 1728 is correctness. However, they submit that the question of whether the test for an anti-suit injunction applied was a question of mixed fact and law and the question of whether the appellants' application was misleading is a question of fact and in both cases, the standard of review is palpable and overriding error. In addition, the respondents submit that the decision of the motion judge is entitled to a high degree of deference because of his broad discretionary powers in s. 12 of the CPA to control the progress of class proceedings.[^6]

[24] The respondents submit that the motion judge did not err in making those determinations.

[25] We agree that the standard of review with respect to the first issue is correctness and that the decision of the motion judge is entitled to a high degree of deference. The remaining two issues are questions of mixed fact and law to which the standard [page126] of review of palpable and overriding error applies. We re-state the issues as follows:

(a) Did the motion judge err in law in finding that the appellants may not use 1782 to circumvent the Rules of Civil Procedure?

(b) Did the motion judge make a palpable and overriding error in his finding of mixed fact and law that the test for an anti-suit injunction did not apply?

(c) Did the motion judge make a palpable and overriding error in his finding of mixed fact and law that the appellants' application was misleading?

Analysis

(a) Did the motion judge err in law in finding that the appellants may not use 1782 to circumvent the Rules of Civil Procedure?

[26] In paras. 39-49, the motion judge provided the framework within which the Ontario court assesses questions of third party discovery in general and specifically within the context of a pre-certification class proceeding. We agree with his analysis of the Rules of Civil Procedure, the policies and procedures applicable to third party discovery and to the pre-certification stage of class proceedings, and with his analysis of the applicable jurisprudence. We agree with his conclusion that the appellants may not use 1782 to circumvent the Rules. We are not persuaded that he made any error in law in that comprehensive analysis.

[27] The appellants made much of the fact that the effect of the motion judge's order was to preclude them from gathering evidence. We disagree. The order does no such thing. The prohibition is only to the extent that the appellants are precluded, for the time being, from using 1782 to compel discovery. They are free to obtain evidence in the form of voluntary disclosure from U.S. witnesses.

[28] In VitaPharm Canada Ltd. v. F. Hoffmann-LaRoche Ltd.,[^7] a distinction was made between pursuing "active discovery" and merely obtaining access to pre-existing discovery. If "active discovery" is sought, as in this case, the appellants would be "engaging in discovery prior to the time that they are entitled to under our Rules and in a way which would be a breach of those Rules".[^8] [page127]

[29] This class action has not yet been certified. As the certification stage does not involve an assessment of the merits of the claim (Pro-Sys Consultants Ltd. v. Microsoft Corp.),[^9] discovery at this stage is limited to evidence relating to certification issues only.

[30] Therefore, the motion judge quite properly declined assistance from the U.S. courts at this time, stating, at para. 60". . . the case at bar is a thanks-but-no thanks situation until after this court has had an opportunity to consider whether it wishes to seek the American court's assistance, which it may yet do".

[31] If the action becomes certified, then a more expansive discovery may be sought including resort to U.S. 1782.

[32] Of importance is the fact that American courts will not issue a 1782 order if the foreign court is not receptive to it. As pointed out in In Re Application of Microsoft Corp.,[^10] there has not been a single case where a 1782 order was granted where a foreign court objected to it. In granting the 1782 order in this case, the American court was not informed that such discovery at this stage was not authorized under Ontario Rules nor permitted by the case management judge.

[33] The motion judge, therefore, properly exercised the broad discretion in s. 12 of the CPA in this case managed class action with respect to the nature of pre-certification discovery of a non-party using American court process and he did not err in finding that the appellants had inappropriately made use of 1782 to circumvent the Ontario Rules.

(b) Did the motion judge make a palpable and overriding error in his finding of mixed fact and law that the test for an anti-suit injunction did not apply?

[34] With respect to the second issue, the appellants took the position that the motion judge, in effect, granted an injunction, without a proper application of the test for injunctive relief. We disagree.

[35] In para. 58, the motion judge came to two important conclusions, namely, that what the appellants did was not compliant with the Rules of Civil Procedure and that the court had the jurisdiction to do something about it. Both of those conclusions follow from his analysis.

[36] As indicated in paras. 100 and 101, the motion judge declined to follow Catucci, as he was entitled to do. In any event, [page128] the motion judge distinguished Catucci on several grounds. First, Chatelain J. did not regard the evidence gathering in Arizona pursuant to 1782 as an examination or pre-trial discovery of a third party conducted under art. 221 of the Code of Civil Procedure, CQLR, c. C-25.01. The motion judge, however, did regard it as discovery of a non-party in contravention of the Rules of Civil Procedure. Second, the motion before Chatelain J. was for a "safeguard order" which required the analysis involved in an interlocutory injunction. The motion judge did not consider that context and instead treated it as a matter of non-compliance with the Rules of Civil Procedure.

[37] We are not persuaded that the motion judge made a palpable and overriding error in concluding that, in the circumstances of a pre-certification class proceeding, the remedy for non-compliance was compliance, not an injunction. In the context of class proceedings, the decision of the case management judge is entitled to deference.

(c) Did the motion judge make a palpable and overriding error in his finding of mixed fact and law that the appellants' application was misleading?

[38] With respect to the third issue, in para. 15 the motion judge pointed out the appellants had not disclosed five key points. In para. 17, he held that Bach's declaration was misleading and not full and fair disclosure. In paras. 18 and 19, he held that the memorandum of law of Stone and Davies was misleading. In para. 40, he found that what the appellants did was improper and he identified four reasons for coming to that conclusion. In para. 56, he identified the four points that the U.S. court should have been told. Each of those points is grounded in the evidence and his application of the evidence to the law of disclosure, particularly in an ex parte application. We are not persuaded that he made a palpable and overriding error in concluding that the application to the U.S. court was misleading.

(d) Remaining issues

[39] As indicated in para. 21(b) above, counsel for the appellants takes the position that the motion judge erred by taking judicial notice that Bloomberg Canada TV station operated in Toronto. We need not consider whether that was a fact of which the court could or should have taken judicial notice because that conclusion had no impact on the decision. It was not "a critical jurisdictional finding". [page129]

[40] As indicated in para. 21(d) above, counsel for the appellants takes the position that the motion judge erred by making "serious and unwarranted criticisms of Appellants' counsel". However, those criticisms are grounded in his findings of the misleading nature of the evidence before the U.S. court. His decision in that regard is entitled to deference.

[41] The appellants also appealed from the motion judge's decision as to costs. In view of the dismissal of the appeal, the appeal of the costs decision is also dismissed.

[42] After hearing submissions and reserving decision, counsel for the appellants forwarded a copy of a decision by Perell J.[^11] on the motion the appellants had brought to add two groups of defendants. Counsel drew our attention to paras. 27 and 57. Counsel for the respondents did not need to respond and did not respond. We see no relevance to that decision or those paragraphs.

Order to go as Follows

[43] The appeal is dismissed.

[44] At the close of oral argument, counsel advised that they would reach agreement as to costs. If counsel are unable to agree as to costs, they will make written submissions within 15 days of release of this decision.

Appeal dismissed.

Notes

[^1]: Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 43, 2017 ONSC 87 (S.C.J.).

[^2]: 28 U.S.C. 1782 ("1782").

[^3]: S.O. 1992, c. 6 ("CPA").

[^4]: [2016] Q.J. No. 8589, 2016 QCCS 3431, leave to appeal refused [2016] J.Q. no 10841, 2016 QCCA 1349.

[^5]: Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 844, 2017 ONSC 1196 (S.C.J.).

[^6]: Phaneuf v. Ontario, [2009] O.J. No. 5618 (S.C.J.), at para. 18; Peter v. Medtronic, Inc., [2010] O.J. No. 3056, 2010 ONSC 3777 (Div. Ct.), at para. 15.

[^7]: 2002 63927 (ON SCDC), [2002] O.J. No. 1400, 2002 CarswellOnt 1205 (Div. Ct.).

[^8]: Ibid., per Farley J., at para. 24.

[^9]: [2013] 3 S.C.R. 477, [2013] S.C.J. No. 57, 2013 SCC 57, at paras. 103-104.

[^10]: 428 F. Supp. 2d 188 (S.D.N.Y. 2006), at 194.

[^11]: Mancinelli v. Royal Bank of Canada, [2017] O.J. No. 6446, 2017 ONSC 7384 (S.C.J.).