COURT OF APPEAL FOR ONTARIO
CITATION: United States v. Yemec, 2014 ONCA 274
DATE: 20140408
DOCKET: C57021 & C57472
Sharpe, Watt and Benotto JJ.A.
AND BETWEEN
C57021
The United States of America and United States Federal Trade Commission
Plaintiffs (Appellants)
and
George Michael Yemec, Anita Fern Rapp, Julia F. Bungaro, World Media Brokers Inc., 624654 Ontario Limited, 637736 Ontario Limited, 537721 Ontario Inc., Express Marketing Services Ltd., 331216 B.C. Ltd., 364058 B.c. Ltd., 1306051 Ontario Inc., 377414 Ontario Inc., O/A World Media Brokers, Dial-A-Million Inc., Telegroup Inc. O/A Market Monitor, 747321 Ontario Inc., Grant Print Inc., 599026 Ontario Inc., Jackpots & Prizes, Nelson Bunting and Express Purchaser Services Ltd.
Defendants (Respondents)
AND BETWEEN
C57472
The United States of America and United States Federal Trade Commission
Plaintiffs (Appellants)
and
George Michael Yemec, Anita Fern Rapp, Steven Lawrence Rapp, Paul Churchill Teskey, Jean-Paul C. Teskey, Julia F. Bungaro, William Dean Temple, Jr., Yvonne Buckingham, Florence Mary Teskey, World Media Brokers Inc., 1165107 Ontario Inc., Faby Games Inc., 624654 Ontario Limited, 637736 Ontario Limited, 537721 Ontario Inc., Express Marketing Services Ltd., 364058 B.C. Ltd., 331216 B.C. Ltd., Intermarketing Services, Inc., Cash & Prizes, Inc., Cash & Prizes Inc., Taras Voloshchuk (a.k.a. Terry Wokoschuk). Canadian Subscription Services, 1306051 Ontario Inc., 377414 Ontario Inc., O/A World Media Brokers, Dial-A-Million Inc., Telegroup Inc., O.A Market Monitor, 747321 Ontario Inc., Grant Print Inc., Jackpots & Prizes, Nelson Bunting, 599026 Ontario Inc. and Express Purchase Services Ltd.
Defendants (Respondents)
Malcolm Ruby and Zoe Paliare, for the appellants
David Wires and Krista Bulmer, for the respondents
Heard: March 19, 2014
On appeal from the orders of Justice Edward Belobaba of the Superior Court of Justice, dated April 2, 2013 and July 2, 2013.
By the Court:
[1] The appellants obtained two ex parte injunctions against the respondents. They provided an undertaking to compensate the respondents for damages if the injunctions were found to have been wrongfully granted. The injunctions were ultimately set aside, and pursuant to the undertaking, an inquiry with respect to damages was held. The inquiry judge awarded damages, legal fees to be held in trust for third parties and a charging order to cover the legal fees of the respondents’ counsel. The USA appeals the damages award and the charging order.
A. History of the Action
[2] The respondents operated telemarketing businesses in Canada. In October 2002, the appellants alleged that the respondents were targeting American seniors and fraudulently demanding fees in their sale of Canadian lottery tickets. The USA applied for and received a Mareva injunction and a Anton Piller order. The motion was heard ex parte based on misleading affidavit evidence. The orders, dated October 3, 2002, included the following undertaking on the part of the appellants, which tracked the language of rule 40.03 of the Rules of Civil Procedure, R.R.O. 1990, Regulation 194:
To abide by any Order concerning damages that the Court may make if it ultimately appears that the granting of the Order has caused damage to the Defendants for which the Plaintiff out to compensate the Defendants.
[3] The ex parte orders were set aside on October 3, 2003. The appellants appealed. The appeal was dismissed by the Divisional Court on March 24, 2005. A damage inquiry was held in 2012.
(1) Damages Inquiry
[4] The damages inquiry was heard over the course of 15 days. The claimants George Yemec, Anita Rapp, Julia Bungaro and Nelson Bunting, along with various corporate claimants, claimed tens of millions of dollars. The inquiry judge dismissed most of the claims on the basis that almost all of the damages claimed had not been caused by the wrongful injunctions. Instead, the inquiry judge found that the damages were caused by other events that pre-dated the injunctions, including a Temporary Restraining Order (TRO) issued by a court in Chicago in the context of a civil proceeding brought by the United States Federal Trade Commission (“FTC”) against several of the respondents in the United States. The TRO had effectively shut down the businesses.
[5] However, the inquiry judge did award a total of $954,576 in damages stemming from the unlawful injunctions, which included the following:
• $1,000 to Mr. Bunting for the seizure of his cellphone during a search of the respondents’ business premises;
• $250,000 to Mr. Yemec for loss of reasonable time to transition to a new business;
• Legal fees to be paid in trust for the following lawyers:
o $52,560 for Goodmans LLP;
o $17,228 for Thomas Kent;
o $3,788 for Wires Jolley LLP;
o $10,000 for Martin Evans.
• Other legal fees to the defendants:
o $25,000 for topping up the costs of setting aside the ex parte order;
o $595,000 for costs of the inquiry and the related appeals.
[6] The inquiry judge also issued a charging order, granting Wires Jolley LLP first charge on $871,000 for the payment of any unpaid fees and expenses in relation to setting aside the ex parte orders and the costs of obtaining and conducting the damages inquiry.
B. The Appeal
[7] The appellants appeal the damages awards and the charging order. They submit that:
(1) The inquiry judge erred in awarding damages to Mr. Bunting for loss of his cellphone because he was not a defendant at the time the cellphone was seized.
(2) Mr. Yemec should not have received damages for loss of transition time because no claim was advanced under that head at the inquiry, the inferences drawn by the inquiry judge were not clear and Yemec’s businesses were illegal.
(3) Damages should not have been awarded to third party law firms because the injunction did not extend to them.
(4) The costs awarded for the inquiry were disproportionate to the amount actually awarded particularly in light of the amount claimed, and top-up costs were not appropriate because the respondents were already awarded costs by the Divisional Court when the appeal was heard.
(5) A charging order is only appropriate when a client derives a net benefit from the solicitor’s work. The appellants argue that, in this case, the respondents remain liable for a $19 million judgment rendered against them in the parallel American proceedings and deemed to be enforceable in Canada by this court. They submit that the Canadian and American actions were one proceeding and thus there was no net benefit to the respondents from the damage inquiry.
C. Analysis
[8] Before dealing with the specific issues, we make two preliminary observations.
[9] First, the starting point for this inquiry is that the appellants were found to have obtained the drastic remedies of an Anton Piller order and a Mareva injunction on an ex parte application based on misleading affidavit evidence.
[10] Second, the errors alleged by the appellants are fact-based. As we will explain, it is our view that the inquiry judge carefully considered the legal tests, articulated the facts and drew available inferences.
- Bunting cell phone
[11] Mr. Bunting’s cellphone was left at premises that became the subject of the seizures pursuant to the Anton Piller order. Although he was not a defendant at the time the injunctions were granted, he became a defendant and, in our view, as a defendant, he is entitled to be compensated pursuant to the undertaking. While the damages awarded appear to us to be generous, there was some evidence to support the award and we decline to interfere.
- Loss of transition time
[12] Mr. Yemec’s “loss of transition time” arose from the fact that he was unable to pursue any business opportunity because the injunctions froze his assets and records. Although the inquiry judge gave this head of damages an unusual label that was not mentioned at the inquiry, there was ample evidence of the drastic impact of the injunction upon Yemec and the award was well within the parameters of the case that was presented.
[13] The inquiry judge found, at para. 35, that the injunction froze Yemec’s assets and bank accounts, both current and future; it was not set aside until one year later; and the appeal effectively extended the period during which Yemec could not realistically raise money for a new venture for another year and a half.
[14] We do not agree that it should be assumed that because of the illegality of Yemec’s past business, he would not have been able to launch a legal venture. In our view, the inquiry judge was entitled to accept the evidence and draw the inferences that he did in making this award.
- Legal Fees in Trust
[15] We do not accept the appellant’s characterization of the award for legal fees to be paid in trust as an award to third party law firms. The amounts awarded corresponded to legal fees the respondents had incurred in dealing with the improperly obtained injunctions. One law firm had obtained a judgment for the fees and other fees remained outstanding to be dealt with at or after the inquiry. The trust provision in the award simply ensured that the fees would be paid to the law firms.
- Costs of the Damages Inquiry
[16] It is not an error of law to award legal fees as damages on an inquiry. (See: Stonehocker v. King 1998 7187 (CA)). The inquiry judge was entitled to require the appellants to pay for all the costs associated with setting aside the wrongly obtained orders and the costs of the damages inquiry. While the amount awarded was substantial, we cannot say that it was unreasonable when considered in the entire context of this litigation.
- Charging Order
[17] The inquiry judge did not err in granting the charging order. The $19 million judgment asserted by the appellants was granted to a different party in a different proceeding and did not preclude the charging order in favour of the solicitors who got the improperly obtained injunctions set aside and obtained and conducted the damages inquiry. We agree with the inquiry judge’s reasons that the work done by the lawyers in the Canadian proceeding was separate from the American proceeding and that the American damages award ought not to deprive the solicitors of their right to a charging order.
D. DISPOSITION
[18] The appeal is dismissed. Costs to the respondent in the amount of $37,500 ($7500 for the charging order appeal and $30,000 for the damages appeal) inclusive of disbursements and applicable taxes.
“Robert J. Sharpe J.A.”
“David Watt J.A.”
“M.L. Benotto J.A.”
Released: April 08, 2014