SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: IN THE MATTER OF 6356095 Canada Inc., formerly Excapsa Software Inc., in liquidation
BEFORE: D. M. Brown J.
COUNSEL:
J. Birch, for the moving party Inspector, Gail Gleed
R. Schwill, for the Liquidator, XMT Liquidations Inc.
HEARD: February 1, 2012
REASONS FOR DECISION
I. Motion for declarations regarding liquidation claims bar process and distribution of funds
[ 1 ] Gail Gleed, the Inspector in the liquidation of 6356095 Canada Inc., formerly known as Excapsa Software Inc., moved for orders respecting the Second Claims Bar Process run pursuant to my order dated November 15, 2011 and the distribution of funds in the hands of the Liquidator, XMT Liquidations Inc.
[ 2 ] No person appeared on the return of the motion to oppose the relief sought, although all proper persons were served with the motion record. By letter dated January 26, 2012 the Director under the Canada Business Corporations Act stated that he need not appear or be heard on the application.
[ 3 ] At the hearing of the motion I signed an order granting the relief sought and indicated that I would release these brief typed reasons for my decision.
II. Factual background
[ 4 ] Pursuant to the order of Mesbur J. made November 30, 2006, effective January 15, 2007 a liquidator was appointed of “all the present and future undertaking, property and assets of whatsoever nature and kind and wherever situate of Excapsa (the “Property)”. That Initial Order directed the conduct of a Pre-Filing Claims Bar Process in respect of “any claims based on acts and omissions occurring up to and including the date of this order that anyone may wish to assert against Excapsa, its officers, its directors, its employees, and independent contractors with respect to the business of Excapsa”. That process was run and certain claims paid.
[ 5 ] The Initial Order also contained a stay of proceedings against Excapsa. Paragraph 39 ordered that “no legal actions…shall be taken or continued against Excapsa or the Liquidator, with respect to the Property or any part thereof except with the prior written consent of the Liquidator or with leave of this Court being first sought and obtained…”
[ 6 ] By order made November 15, 2011, I authorized the Liquidator to conduct a second claims bar process “covering all claims that may be asserted against 6356095 Canada Inc. and any of its current or former affiliates, employees, independent contractors, liquidators, directors, inspectors, officers and agents…based on acts, omissions, facts, or circumstances existing up to the date of this order…”
[ 7 ] The Liquidator has filed its Seventh Report describing its conduct of the Second Claims Bar Process. I am satisfied that the Liquidator conducted the process in accordance with the directions contained in my November 15, 2011 order.
[ 8 ] The Liquidator reported that it did not receive any proofs of claim prior to the second claims bar deadline of January 13, 2012. What the Liquidator did receive was a January 10 email from a California attorney, Mr. Alan Engle, enclosing a draft Complaint which his eight clients intended to commence in California courts against 6356095 Canada Inc. and 50 John/Jane Does. The Liquidator had given Mr. Engle notice of the Second Claims Bar Process. Mr. Engle was no stranger to the liquidation. The Liquidator’s report contained correspondence from Mr. Engle in 2009 asserting a similar claim on behalf of some of the same clients and threatening the commencement of an action against a number of defendants, including 6356095 Canada. That action was not commenced.
[ 9 ] Mr. Engle’s January 10, 2012 email was direct, if somewhat crude, in its approach. He emphasized that the email contained an offer to settle litigation which his clients proposed to commence the following day in California. As I read the email, it did not purport to constitute a proof of claim by his clients in the liquidation proceedings, but contained a simple threat that unless the liquidator paid the amount demanded, his clients would commence litigation which they thought would force the liquidator to expend liquidation assets in order to defend.
[ 10 ] Counsel for the Liquidator responded to Mr. Engle on January 11, 2012, reviewing the history of the two claims bar process orders and inviting Mr. Engle to submit a proof of claim on behalf of his clients in the liquidation process.
[ 11 ] True to his word on January 13, 2012 Mr. Engle commenced an action in the United States District Court, Central District of California, against 6356095 Canada. Prior to commencing that action the California Plaintiffs did not seek leave of this Court to do so. Accordingly, the California Plaintiffs are in breach of the stay of proceedings contained in paragraph 39 of the Initial Order.
[ 12 ] Having learned of the California action, on January 16, 2012 counsel for the Liquidator wrote to Mr. Engle advising that the Liquidator did not recognize the legitimacy of the US proceeding or the US court and would seek an order from this Court confirming that the claims of the California Plaintiffs were barred.
[ 13 ] Mr. Engle responded on January 18, 2012 raising a multitude of jurisdictional issues and contending that all such issues should be litigated before the courts in the United States.
[ 14 ] Finally, yesterday, January 31, 2012, Mr. Engle faxed me a lengthy letter, followed by a couriered copy, contending that I should stay the Ontario liquidation proceedings until his clients’ claims were adjudicated by the U.S. Court or “transferred to this tribunal in conformity with the standards of international law”. Mr. Engle disclosed that he is not licensed to practice law in Canada and is “largely unfamiliar with Canadian law and procedure” but, nonetheless, proceeded to make extensive submissions on the law applicable in Canada. Most significantly, Mr. Engle wrote:
While I would prefer to bring such matters to the Court’s attention via a formal motion in opposition to the Application, I resort to this letter primarily because, with one possible exception, my clients do not fall under the jurisdiction of this Court and do not wish to voluntarily submit to its jurisdiction at this time.
Mr. Engle also made it clear that his clients were not submitting to or participating in the claims bar process ordered by this Court:
I hope this letter will make it clear that there are compelling reasons under both Canadian and U.S. law, and under principles of international comity and natural justice more generally, why the Court should stay this liquidation at least until the relevant jurisdictional issues have been decided by the U.S. Court.
III. Analysis
[ 15 ] As a matter of courtesy I have read Mr. Engle’s letter; as a matter of law I give it no credence or weight. Ontario courts keep their doors wide open to foreign claimants who wish to pursue remedies in proceedings before them. In cross-border corporate and insolvency litigation counsel appear frequently in Ontario courts representing claimants who reside in the United States. It was open to the California Plaintiffs to file a proof of claim in this liquidation or to move to lift the stay of proceedings, but they have elected to avoid submitting to the jurisdiction of this Court. That is their choice but, as with any choice, it comes with consequences.
[ 16 ] This Court possesses and has exercised jurisdiction over the person of 6356095 Canada, over its assets, and over the subject-matter of this liquidation. By at least 2009 most of the California Plaintiffs knew of this proceeding; they did nothing to intervene or to assert any rights they may have enjoyed in the liquidation. They had notice of the Second Claims Bar Process, yet they decided not to file a proof of claim. Natural justice, a concept emphasized by Mr. Engle, requires that an affected party have an opportunity to be heard. The Second Claims Bar Process afforded such an opportunity to the California Plaintiffs, but they decided not to speak.
[ 17 ] I give no weight to the factual assertions made by Mr. Engle in his letter. Our law requires that factual assertions be placed before the court by way of evidence under oath; lawyers’ letters do not constitute evidence.
[ 18 ] Finally, the allegations contained in the California complaint appear to cover the period from 2003 until late 2008 or sometime in 2009. The First Claims Bar Process disposed of all pre-filing claims, which would cover part of the period of time asserted in the complaint. At the time of the Initial Order 6356095 Canada was not carrying on business by virtue of the October 12, 2006 Stock Purchase Agreement it had entered into. On two occasions this Court approved amendments to that Stock Purchase Agreement. At least by October 6, 2009, over two years ago, the California Plaintiffs had discovered facts which they contended supported a claim against 6356095 Canada, yet they did not initiate any claim. In light of the ample opportunity which has been available to the California Plaintiffs to participate or to intervene in this liquidation, I see no merit in their last-minute epistolary submission seeking to delay proceedings to which they have refused to attorn.
[ 19 ] Having reviewed the motion materials I was satisfied that it was fair and proper to (i) approve the Second Claims Bar Process, (ii) declare the claims of the California Plaintiffs barred and extinguished, (iii) authorize the distribution of the Indemnification Fund on the terms set out in the Liquidator’s Report and my November 15, 2011 order, (iv) direct the Liquidator to take no action in response to the action commenced by the California Plaintiffs, and (v) grant the other relief sought in the Notice of Motion.
[ 20 ] I direct the Liquidator to fax a copy of these Reasons to Mr. Engle. I do not know what Mr. Engle’s practice is when his clients are not successful on a matter. Mr. Engle has written one letter directly to me. Such a form of communication does not comply with our rules of practice. I wish to give Mr. Engle and his clients a “heads-up” that they should not write any further letters to me or any other judge of this Court. If they do, the letters will be ignored. If the California Plaintiffs wish to seek any relief from this Court, they must appear before it like any other litigant and plead their case in accordance with our Rules of Civil Procedure .
D. M. Brown J.
Date : February 1, 2012