Ontario Superior Court of Justice

Davidson v. Barnhardt et al. [Indexed as: Davidson v. Barnhardt]

113 O.R. (3d) 475
2012 ONSC 6016

Ontario Superior Court of Justice,
O'Neill J.
October 23, 2012

Evidence -- Letters of Request -- Self-incrimination -- Respondent ordered to attend examination in Ontario pursuant to Letter of Request issued in civil action in California -- Respondent not permitted to invoke Fifth Amendment to United States Constitution and to refuse to answer questions where her answer might incriminate her.

The applicant applied successfully to give effect to a Letter of Request issued in a civil action in California relating to the alleged fraudulent offer and sale of securities in that state. The respondent was ordered to attend an examination to answer questions on the issues described in the Letter of Request and to produce certain documents. She refused to answer most of the questions on the basis of the Fifth Amendment to the United States Constitution, out of a concern that her answers could be used by the Federal Bureau of Investigation to support criminal charges against her. The applicant moved for an order that the respondent was not entitled to invoke the Fifth Amendment in an examination conducted in Ontario.

Held, the motion should be granted.

The process of taking evidence under Letters of Request is not governed by foreign law where fundamental values, such as the rights of witnesses, are concerned. While this case had been referred to the FBI, there was no evidence that the FBI investigation had proceeded beyond that point. The admission of transcript evidence taken in Ontario, to be potentially utilized in an American criminal proceeding against the respondent, was properly a matter for the American court, not a Canadian court.

MOTION for an order that the respondent was not entitled to invoke the Fifth Amendment to U.S. Constitution on an examination in Ontario.

Cases referred to
Catalyst Fund General Partner I Inc. v. Hollinger Inc. (2005), 2005 39860 (ON CA), 79 O.R. (3d) 70, [2005] O.J. No. 4666, 261 D.L.R. (4th) 591, 203 O.A.C. 383, 143 A.C.W.S. (3d) 478 (C.A.); EchoStar Satellite Corp. v. Quinn, [2007] B.C.J. No. 1799, 2007 BCSC 1225, [2007] 11 W.W.R. 522, 71 B.C.L.R. (4th) 172, 160 A.C.W.S. (3d) 989; Royal Trust Corp. of Canada v. Fisherman (2000), 2000 22384 (ON SC), 49 O.R. (3d) 187, [2000] O.J. No. 2077, [2000] O.T.C. 425, 46 C.P.C. (4th) 388, 76 C.R.R. (2d) 153, 97 A.C.W.S. (3d) 443 (S.C.J.); United States of America v. Pressey (1988), 1988 4530 (ON CA), 65 O.R. (2d) 141, [1988] O.J. No. 446, 51 D.L.R. (4th) 152, 27 O.A.C. 304, 26 C.P.C. (2d) 122, 4 W.C.B. (2d) 336 (C.A.)

Justin G. Necpal, for applicant.
Kristian Borg-Olivier, for respondents.

[ 1 ] O'NEILL J.: -- These reasons follow the order which I made on October 18, 2012. Reference to a respondent in these reasons [page476] means the respondent Gertrude Barnhardt. The materials in support of the moving party's notice of motion can be found in the motion record filed with the court. As outlined in the moving party's factum, this motion raises the following legal issue:

Is a witness on an examination conducted in an Ontario proceeding, under Ontario law, entitled to refuse to answer questions on the basis of the Fifth Amendment to the United States Constitution (the U.S. rule against self- incrimination)? Put in the vernacular, will this Court permit a witness in Ontario to "plead the Fifth"?

[ 2 ] It is not disputed that the within proceeding is an application to give effect to a Letter of Request issued by the Superior Court of the State of California for the County of Los Angeles, in a civil action pending in California relating to the alleged fraudulent offer and sale of securities in California. As outlined in the applicant's factum, "the Letter of Request sought the assistance of this court in ordering the respondent, Gertrude Barnhardt ("G. Barnhardt"), a resident of Ontario and mother of J. Barnhardt, to provide testimony and documents relevant to the California Action, and specifically in relation to certain alleged fraudulent transfers of money from CanAm to a corporation known as Taurus Financial Advisors Ltd. ("Taurus"), of which G. Barnhardt is the sole shareholder and only officer".

[ 3 ] At para. 3 of his factum, the moving party stated:

The application was granted on March 12, 2012 by the Honourable Justice O'Marra, who ordered G. Barnhardt to attend an examination to answer questions on the issues described in the Letter of Request and to produce certain documents responsive to the Letter of Request. G. Barnhardt did not initially comply with the Order, but ultimately agreed to attend for an examination after the Receiver took certain steps toward a motion for contempt. On her examination, however, G. Barnhardt refused to answer the majority of questions on the basis of the Fifth Amendment to the U.S. Constitution. The Receiver has brought this motion to compel G. Barnhardt to answer those questions on the basis that the Fifth Amendment is not a valid objection on an examination conducted in an Ontario proceeding.

[ 4 ] It is to be noted that when the respondents failed to answer the applicant's request for production of documents responsive to the Letter of Request, the parties attended Motion Scheduling Court on July 27, 2012. Justice Stinson adjourned the scheduling of the motion for contempt for one week and directed the parties to agree on a date for examination.

[ 5 ] After Gertrude Barnhardt agreed to be examined on September 7, 2012, she attended the examination where she refused to answer 200 questions on the basis of the Fifth Amendment to the U.S. Constitution. The examination was adjourned in order [page477] to obtain the direction of this court with respect to the legality of the objections made on the examination.

[ 6 ] In the responding factum, counsel outlined a gap in the respective legal systems of Canada and the United States with respect to protection from self-incrimination. At para. 22 of the factum, counsel referenced the following statement from the Ontario Court of Appeal:

Canadian Courts, when asked to assist courts of the United States in procuring evidence for civil trials there, should be aware of the risk that they might put citizens or residents of Canada in the worst of both worlds -- compulsion to testify in Canada followed by use of the compelled material in the U.S. Catalyst Fund General Partner I Inc. v. Hollinger Inc. (2005), 2005 39860 (ON CA), 79 O.R. (3d) 70, [2005] O.J. No. 4666 (C.A.), at para. 4.

[ 7 ] Counsel took the position that "if Ms. Barnhardt was being examined in the United States, she would be entitled to refuse to answer questions on the basis of the Fifth Amendment, and thus would be protected against self-incrimination". On the other hand, "if Ms. Barnhardt was facing criminal jeopardy in Canada, she could answer questions freely in her Canadian examination, safe in the knowledge that the Canadian regime of use immunity would protect her against self-incrimination".

[ 8 ] The concern expressed by counsel on the application before me was that answers given by Ms. Barnhardt under oath in Ontario, and reduced to a transcript for use in the California action could then be subsequently utilized by the FBI or investigators to found evidentiary support against, or to bring to fruition, criminal charges against Gertrude Barnhardt. This is so, counsel submitted, despite the fact that the receiver, Peter Davidson, provided a signed undertaking dated May 4, 2012, which provided, in part, as follows:

. . . undertakes not to make the information and evidence obtained under Justice O'Marra's order of March 12, 2012 available to third parties, save as may be required by law[.]

[ 9 ] I am unable to accept the position taken by counsel for the respondent in this case, with respect to the necessity of invoking the Fifth Amendment in an Ontario proceeding to protect Gertrude Barnhardt against self incrimination, for the following reasons.

[ 10 ] (i) While it is true that a separate civil action has now been commenced against Gertrude Barnhardt in California, with respect to issues relating to alleged fraudulent transfers and aiding and abetting a fiduciary duty, no criminal charges [page478] have yet been brought. Evan Jenness, attorney at law, made a solemn declaration on June 26, 2012 in which he stated:

AUSA Werner-Simon also stated that there was evidence that Mr. Barnhardt's mother was involved in relevant conduct. Specifically, she stated that Mrs. Barnhardt was involved in creating what she described as a "shell company" that allegedly was used to engage in money laundering. AUSA Werner-Simon did not indicate if the government believes that Mrs. Barnhardt acted with knowledge of the nature of her alleged conduct and with wrongful intent, nor whether Mrs. Barnhardt is a target of the government's investigation.

[ 11 ] In the supplementary responding application record, counsel for the respondent referred to the affidavit of Sean Andrade sworn September 30, 2012. In para. 4 of his affidavit, Mr. Andrade stated:

The Commissioner, through its counsel Mary Ann Smith, has indicated in open court that it has made referral to the Federal Bureau of Investigation as a result of the matters at issue in the Action. Attached as Exhibit A to this affidavit is a true copy of an excerpt from the transcript of a court hearing on March 7, 2012, during which Ms. Smith confirmed on the record her referral to the Federal Bureau of Investigation.

[ 12 ] In the attached transcript, it is indicated that there has been a referral of the case to the FBI but that "we do not know what the status of that referral is".

[ 13 ] The situation with respect to the referral and any FBI investigation has not changed since the date of these declarations or statements. The respondent was aware of these facts in advance of February 13, 2012, when an argument was made before Justice O'Marra, but the Fifth Amendment issue was not raised at that time.

[ 14 ] Nor did the respondent raise the Fifth Amendment issue when it was agreed on August 1, 2012 that Ms. Barnhardt would be examined on September 7, 2012.

[ 15 ] (ii) I accept the applicant's position, as outlined in para. 42 of the factum, that "Ontario Courts have consistently held that the process of taking evidence under Letters of Request is not governed by foreign law where fundamental values, such as the rights of witnesses are concerned." As noted by the Ontario Court of Appeal in the Pressey decision (United States of America v. Pressey (1988), 1988 4530 (ON CA), 65 O.R. (2d) 141, [1988] O.J. No. 446 (C.A.), at pp. 143 and 145 O.R.):

The legal process that takes place in this country [under letters of request] is not a mere extension of the requesting court, but is an independent process conducted to assist the requesting court. Therefore, the forum in which [the witness] is examined retains its character as a Canadian forum and the ordinary rule that evidentiary matters are governed by the law of the forum should apply. [page479] @7 . . . . .

It is the witness who claims the applicability of the foreign law on the grounds that it affords a greater protection than does our own. In my view, however, the principle remains the same. In fundamental matters, it is the law of this country which applies to examinations authorized by s. 43 [now s. 46 of the Canada Evidence Act, which is the equivalent of s. 60 of the Ontario Evidence Act ]. In this case, we are dealing with matters that are not only fundamental but which reflect different constitutional values. I can see no reason why in these circumstances Mr. Pressey should be entitled to claim the benefit of constitutional values other than our own.

[ 16 ] (iii) I accept, in general, the respondent's point best summarized by the British Columbia Court of Appeal in the decision EchoStar Satellite Corp. v. Quinn, [2007] B.C.J. No. 1799, 2007 BCSC 1225, where the court stated [at para. 78]:

. . . Canadian courts, when asked to assist courts of the United States in procuring evidence for civil trials there, should be aware of the risk that might put citizens or residents of Canada in the worst of both worlds -- compulsion to testify in Canada followed by use of the compelled material in the U.S.

[ 17 ] While I am accordingly aware of risks faced by Gertrude Barnhardt, several points need to be made: (a) There is no evidence that the FBI investigation has proceeded or matured beyond the points described by Sean Andrade and Evan Jenness. (b) The undertaking of Peter Davidson remains in force. (c) In some respects, the sovereignty of a U.S. court can be impinged or underappreciated, if a Canadian court rules, under circumstances such as this, as to the validity or applicability of Ms. Barnhardt's Fifth Amendments rights. Stated differently, I am satisfied that, in this case, the admission of transcript evidence taken in Ontario, to be potentially utilized in an American criminal proceeding against Ms. Barnhardt, is properly a matter for the American court, not a Canadian court. In the decision Royal Trust Corp. of Canada v. Fisherman (2000), 2000 22384 (ON SC), 49 O.R. (3d) 187, [2000] O.J. No. 2077 (S.C.J.), Justice Cumming stated [at para. 39]:

In my view, this court should not give a stay for the purpose of denying the American authorities access to incriminating evidence where the American court would admit such evidence because its admission would not shock the judicial conscience or violate baseline due process requirements. This is a matter of standards for the American court to determine when applying American law. The principles at stake arise from American constitutional requirements and not Canadian constitutional requirements. . . . The principle of [page480] comity and respect for the sovereignty of another nation applies, particularly when that other country is a recognized democracy governed by the rule of law.

[ 18 ] In my view, this legal principle and statement is fully applicable in this case. It is for an American court to determine (if such determination might ever be made), whether the admission of any compelled transcript evidence from Ms. Barnhardt would shock the judicial conscience or violate baseline due-process requirements with respect to Ms. Barnhardt's Fifth Amendment rights. Any American court considering this matter will have available to it a full record as well as an appreciation of the fact that Ms. Barnhardt's evidence was compelled by a court order made by a Canadian judge. An American court will then apply its standards to American law in determining whether any potential use of self- incriminating transcript evidence provided by Ms. Barnhardt pursuant to a Canadian court order can be introduced and made applicable in American court proceedings.

[ 19 ] In short, arguments relating to the rights and protections afforded by the Fifth Amendment to the United States Constitution remain available to Ms. Barnhardt, if and when she is required to rely upon such rights in proceedings in an American court, when attempts may be made to have her compelled transcript evidence used against her.

[ 20 ] These reasons support the order which I made on October 18, 2012. Order accordingly, as set out in my endorsement of October 18, 2012.

[ 21 ] The applicant is entitled to his costs of this motion on the partial indemnity scale. If the parties cannot agree on these costs, then the applicant shall forward a bill of costs and cost submissions to the trial coordinator at Parry Sound by November 9, 2012. The respondent may forward a response by November 19, 2012.

[ 22 ] Order accordingly.

Motion granted.