Amtim Capital Inc. v. Appliance Recycling Centers of America

Ontario Reports

Court of Appeal for Ontario,

Weiler, Rouleau and Strathy JJ.A.

January 23, 2014

118 O.R. (3d) 617 | 2014 ONCA 62

Case Summary

Actions — Bars — Res judicata — Defendant obtaining defensive declaratory judgment in U.S. District Court in Minnesota declaring that it owed plaintiff nothing under contracts between parties — Defendant moving to stay plaintiff's action in Ontario for amounts contractually owing on basis of res judicata or issue estoppel — Even if res judicata and issue estoppel were made out, motion judge not erring in exercise of his discretion in refusing to apply them on grounds that there was no determination of issues on merits in District Court and that claim for compensation was integrally tied to Ontario.

A dispute arose between the parties about the amount the defendant owed to the plaintiff pursuant to agreements for services the plaintiff had rendered and continued to render in Canada. The agreements expressly provided that they were to be both governed and enforced by Ontario law. The defendant commenced an action in the U.S. District Court in Minnesota for a declaration that it owed the plaintiff nothing under the contracts. The plaintiff did not attorn to the jurisdiction of the court and did not file an answer. Several weeks later, the plaintiff commenced an action in Ontario under the contracts. The defendant obtained default judgment in Minnesota. It did not inform the District Court of the Ontario action, and the court did not consider the merits of the dispute. The defendant brought an application for an order dismissing or staying the Ontario action on the basis of res judicata, issue estoppel or abuse of process. The motion was dismissed. The defendant appealed.

Held, the appeal should be dismissed.

Even assuming that the motion judge erred in holding that res judicata and issue estoppel were not made out, he had discretion not to apply them if, taking into account the entirety of the circumstances, to do so would result in injustice. The motion judge did not err in the exercise of his discretion in refusing to grant equitable relief on the grounds that there had not been a hearing on the merits and the claim for compensation was integrally tied to Ontario.

Cases referred to

Amtim Capital Inc. v. Appliance Recycling Centers of America, [2012] O.J. No. 958, 2012 ONSC 1214 (S.C.J.); Amtim Capital Inc. v. Appliance Recycling Centers of America, [2012] O.J. No. 4608, 2012 ONCA 664, 298 O.A.C. 75; Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460, [2001] S.C.J. No. 46, 2001 SCC 44, 201 D.L.R. (4th) 193, 272 N.R. 1, J.E. 2001-1439, 149 O.A.C. 1, 34 Admin. L.R. (3d) 163, 10 C.C.E.L. (3d) 1, [2001] CLLC Â210-033, 7 C.P.C. (5th) 199, 106 A.C.W.S. (3d) 460; Muscutt v. Courcelles (2002), 2002 CanLII 44957 (ON CA), 60 O.R. (3d) 20, [2002] O.J. No. 2128, 213 D.L.R. (4th) 577, 160 O.A.C. 1, 13 C.C.L.T. (3d) 161, 26 C.P.C. (5th) 206, 114 A.C.W.S. (3d) 634 (C.A.); Wolfe v. Pickar, [2011] O.J. No. 2035, 2011 ONCA 347, 282 O.A.C. 64, 92 C.P.R. (4th) 208, 84 C.C.L.T. (3d) 167, 332 D.L.R. (4th) 157

APPEAL from the order of Lofchik J. (2013), 116 O.R. (3d) 379, [2013] O.J. No. 3389, 2013 ONSC 4867 (S.C.J.) dismissing an application to stay or dismiss an action. [page618]

Thomas McRae and Matthew Urback, for appellant.

Ron Craigen and Michael Paiva, for respondent.

[1] Endorsement BY THE COURT: -- Appliance Recycling Centers of America ("ARCA") appeals the motion judge's refusal to dismiss or stay this action, brought against it by the respondent, Amtim Capital Inc. ("Amtim"). Its submission before the motion judge, and in this court, was that this action is barred by a judgment for declaratory relief granted by the United States District Court, District of Minnesota.

[2] ARCA is a Minnesota company that had two contracts with Amtim, an Ontario company, as part of ARCA's business interests in Ontario. Amtim disputed ARCA's calculation of payments owed to it under the agreements.

[3] ARCA commenced an action in Minnesota seeking a declaration that it owed Amtim nothing.

[4] Amtim commenced an action in Ontario for $1.6 million under the contracts.

[5] Amtim unsuccessfully brought a motion to dismiss the Minnesota action on the grounds of lack of jurisdiction or forum non conveniens. After its motion was dismissed, Amtim did not defend ARCA's action and the U.S. District Court entered a default judgment in favour of ARCA. That judgment declared that ARCA's method of calculating the amount owing to Amtim was compliant with the parties' contracts and that ARCA did not owe anything to Amtim beyond what it had already paid.

[6] Armed with the default judgment, ARCA moved to set aside service of the statement of claim and to stay this action on the basis of forum non conveniens. ARCA conceded that the Ontario court had jurisdiction over it and jurisdiction to entertain this action. ARCA's motion was dismissed: Amtim Capital Inc. v. Appliance Recycling Centers of America, [2012] O.J. No. 958, 2012 ONSC 1214 (S.C.J.). Applying a Muscutt analysis (Muscutt v. Courcelles (2002), 2002 CanLII 44957 (ON CA), 60 O.R. (3d) 20, [2002] O.J. No. 2128 (C.A.)), the motion judge, Gordon J., held that Ontario had the closest connection to the dispute.

[7] This court dismissed an appeal from that order: Amtim Capital Inc. v. Appliance Recycling Centers of America, [2012] O.J. No. 4608, 2012 ONCA 664, 298 O.A.C. 75. This court found no reason to interfere with the motion judge's Muscutt analysis. This court also rejected ARCA's submission that the default judgment in the U.S. action was a factor that trumped all others. Such a conclusion would "reduce the determination of the forum conveniens issue into a race to the courthouse and then to judgment. To do so would impair the flexibility of [page619] the full forum conveniens analysis that must be conducted" (at para. 17).

[8] Significantly for the purpose of this appeal, Goudge J.A., who gave the judgment of this court, added, at para. 18:

Moreover, to give the Minnesota default judgment the result contended for by the appellant is in effect to conclude that it constitutes res judicata for the entire Ontario action. As the Ontario action proceeds, the appellant may be able to use the Minnesota judgment to stay or defend the Ontario action on the basis of res judicata or a related legal doctrine. However it must do so directly and explicitly. In the forum non conveniens context, the Minnesota action including the default judgment remains only one relevant factor among others to be weighed together by the motion judge. That is what happened here.

[9] ARCA then moved to dismiss or stay this action on the basis that the issue whether ARCA owed Amtim any money was res judicata, that this action was a collateral attack on the U.S. District Court judgment and that the doctrine of issue estoppel applied. It submitted that Ontario ought to recognize and enforce the District Court judgment and that this action was a collateral attack on it.

[10] In dismissing ARCA's motion, the motion judge reviewed the law on recognition and enforcement of foreign judgments. Ontario courts will recognize and enforce a foreign judgment where the foreign court had jurisdiction according to Ontario's jurisdiction rules. That is, (1) the defendant consented, submitted or attorned to the foreign court; (2) the defendant was resident or present in the foreign jurisdiction when the proceedings were commenced; or (3) there was a real and substantial connection between the defendant and the cause of action in the forum. Only the third criterion was in issue.

[11] The U.S. District Court did not consider the merits of the dispute. The motion judge held that ARCA's U.S. action was "a preemptive strike against a natural plaintiff" (at para. 33). He observed that ARCA obtained the default judgment pursuant to special declaratory relief legislation. Under that legislation, the motion judge noted, U.S. Federal Courts have "unique and substantial discretion" to declare parties' rights (at para. 30). Those courts consider whether a declaratory judgment is sought merely as a procedural device, and may consider which party is the "true" plaintiff; they may deny relief if the proceeding is a tactical maneuver to prevent an injured party from litigating in its forum. In this case, the motion judge noted the record in the District Court action did not refer to the Ontario proceedings and did not include any evidence of Amtim's calculations under the contracts. [page620]

[12] The motion judge concluded that the Ontario action did not subject ARCA to a proceeding for the same cause of action, because the Ontario action sought damages rather than a declaration. He found Ontario had the real and substantial connection to the action on the grounds that Amtim provided its services in Ontario; Amtim never had any contact with Minnesota; the contracts provided that Ontario law governed the agreements and they are to be "enforced" in Ontario. He concluded that Minnesota did not have a real and substantial connection to the action. Moreover, because the District Court did not adjudicate the merits, he held the doctrines of issue estoppel and res judicata did not apply.

[13] Finally, even if the requirements for the doctrines of issue estoppel and res judicata were met, the motion judge would have exercised his discretion to refuse to apply them. The underlying purpose of these doctrines is to balance the public interest in finality of litigation with the public interest of ensuring a just result on the merits. He held that dismissal of Amtim's action on the basis of res judicata or issue estoppel "would be inconsistent with the ends of justice and deprive an Ontario company of a hearing on the merits in this province of a claim for compensation that is integrally tied to Ontario" (at para. 38).

[14] The appellant makes the following submissions. The motion judge erred in principle in exercising his discretion in the manner he did. Amtim made a conscious decision not to participate in the Minnesota proceeding. It should not be rewarded for this conduct. The motion judge ignored the fact there was more than one jurisdiction with a real and substantial connection because on ARCA's forum non conveniens motion Gordon J. had accepted that Minnesota had jurisdiction simpliciter. The motion judge therefore erred in finding that there was only one jurisdiction with a real and substantial connection, Ontario, and that the matter should be heard here. The fact that a full hearing on the merits did not take place is Amtim's fault.

[15] We disagree. For the purposes of this appeal, we are prepared to accept, on the basis of Gordon J.'s conclusion, that both Ontario and Minnesota had jurisdiction over this dispute on the real and substantial connection test. However, the doctrines of res judicata and issue estoppel, as well as the rule against collateral attack and abuse of process, were developed to advance the ends of justice. They are intended to promote the orderly administration of justice and are not to be mechanically applied where to do so would work an injustice. See Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460, [2001] S.C.J. No. 46, 2001 SCC 44, at paras. 1, 19, 20, 33. [page621]

[16] Even assuming that the motion judge erred in holding that res judicata and issue estoppel were not made out, he had discretion not to apply them if, taking into account the entirety of the circumstances, to do so would result in injustice: Danyluk, at para. 80. The motion judge exercised his discretion not to grant equitable relief for two reasons. They are (1) there had not been a hearing on the merits and (2) the claim for compensation "is integrally tied to Ontario".

[17] At the time of ARCA's forum non conveniens motion, when Gordon J. observed that Minnesota had jurisdiction simpliciter, the District Court had already taken jurisdiction and had granted a default judgment. Although he accepted that the District Court had jurisdiction, Gordon J. held that Ontario had a more real and substantial connection with the litigation. His decision was appealed and the appeal was dismissed. Therefore, in holding that the litigation was "integrally tied to Ontario", we do not read the reasons of the motion judge as disclosing any error in principle in the exercise of his discretion.

[18] We have considered the comity issue. We fully recognize the importance of comity and respect for orders of courts of other jurisdictions. Nevertheless, there were a host of factors in this case, most of which were expressly considered by the motion judge, that justified the exercise of his discretion not to stay the proceedings. These included the minimal connections to Minnesota; the absence of any determination of the issues on the merits in the District Court; and the fact that the District Court action had no enforcement effect and was commenced solely as a defensive measure.

[19] We are comforted by the fact that the jurisprudence suggests that the U.S. District Court would be concerned by a race to res judicata and, as conceded, it was not informed of the Ontario proceedings, or apprised of any calculation with respect to the damages claimed, when it was asked to grant default declaratory judgment. Ontario courts have refused to recognize negative declaratory relief where the purpose of the proceeding is to bar the natural plaintiff's claim in the jurisdiction with the closest connection to the litigation: see Wolfe v. Pickar, [2011] O.J. No. 2035, 2011 ONCA 347, 332 D.L.R. (4th) 157.

[20] The appeal is therefore dismissed.

[21] Costs of the appeal are to the respondent and are fixed in the amount of $22,000, inclusive of all applicable taxes and disbursements.

Appeal dismissed.

End of Document