Amtim Capital Inc. v. Appliance Recycling Centers of America

Ontario Reports

Superior Court of Justice,

Lofchik J.

July 19, 2013

116 O.R. (3d) 379 | 2013 ONSC 4867

Case Summary

Actions — Bars — Res judicata — Issue estoppel — Defendant in Ontario action obtaining declaratory judgment in Minnesota based solely on fact that plaintiff did not attorn to jurisdiction of Minnesota courts and did not file answer to defendant's complaint — Defendant not informing Minnesota court of plaintiff's action against it in Ontario — Court not considering merits of dispute between parties — Doctrine of issue estoppel or res judicata not applying to bar Ontario action — Exercise of court's discretion to refuse to apply those doctrines being appropriate if they did apply — Giving effect to Minnesota judgment would appear to sanction forum shopping.

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 Minnesota for declaratory relief. Several weeks later, the plaintiff commenced an action in Ontario to address the amounts owing pursuant to the agreements. The defendant obtained default judgment in Minnesota based solely on the fact that the plaintiff did not attorn to the jurisdiction of the Minnesota courts and did not file an answer to the defendant's complaint. The defendant did not inform the Minnesota court of the action against it in Ontario, 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.

Held, the application should be dismissed.

There was a real and substantial connection between the action and Ontario. The defendant's Minnesota judgment, premised upon Minnesota's long-arm statute and the establishment of "minimum contacts" with that state, was insufficient to ground jurisdiction according to Canadian conflict of laws rules, and had no enforcement capability except as a defensive response to a positive claim by the plaintiff. As the issues were not adjudicated on the merits in the Minnesota action, the doctrine of issue estoppel or res judicata did not apply. If that conclusion was wrong, the exercise of the court's discretion to refuse to apply those doctrines was appropriate. Giving the Minnesota declaratory judgment effect would give the appearance of sanctioning forum shopping.

Cases referred to

1117322 Ontario Inc. v. Telus Corp., [2010] O.J. No. 1415, 2010 ONCA 262; Amtim Capital Inc. v. Appliance Recycling Centers of America, [2012] O.J. No. 4608, 2012 ONCA 664, 298 O.A.C. 75, affg [2012] O.J. No. 958, 2012 ONSC 1214 (S.C.J.); Beals v. Saldanha, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, 2003 SCC 72, 234 D.L.R. (4th) 1, 314 N.R. 209, J.E. 2004-127, 182 O.A.C. 201, 39 B.L.R. (3d) 1, 39 C.P.C. (5th) 1, 113 C.R.R. (2d) 189, 127 A.C.W.S. (3d) 648; 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; [page380] Las Vegas Strip Ltd. v. Toronto (City) (1997), 1997 3841 (ON CA), 32 O.R. (3d) 651, [1997] O.J. No. 1033, 99 O.A.C. 67, 70 A.C.W.S. (3d) 153 (C.A.), affg (1996), 1996 8037 (ON SC), 30 O.R. (3d) 286, [1996] O.J. No. 3210, 13 O.T.C. 308, 38 C.R.R. (2d) 129, 34 M.P.L.R. (2d) 233, 65 A.C.W.S. (3d) 851 (Gen. Div.); Sikorsky v. Lloyds, unreported, United States District Court 2011; 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; Wolfe v. Wyatt, [2010] O.J. No. 2434, 2010 ONSC 2368, 84 C.P.R. (4th) 43 (S.C.J.); Wyeth v. Wolfe, unreported, United States District Court Action No. 08-0754

Statutes referred to

Declaratory Judgment Act

APPLICATION for an order dismissing or staying an action.

Ron Craigen, for plaintiff respondent.

Thomas McRae, for defendant applicant.

LOFCHIK J.: —

[1] The defendant, Appliance Recycling Centers of America ("ARCA"), seeks an order dismissing or, in the alternative, staying this action (the "Ontario action") on the basis of res judicata, issue estoppel or abuse of process. Their position is that the issues in the Ontario action have been finally and conclusively determined by a judgment rendered in the United States District Court in Minnesota (the "U.S. action").

[2] ARCA is a corporation organized and existing under the laws of the State of Minnesota. It is in the business of providing recycling services.

[3] Beginning in 2007, the subsidiary of ARCA ("ARCA Canada Inc.") began recycling major appliances in Ontario under a contract that ARCA had entered into with the Ontario Power Authority. In conjunction with this contract with the Ontario Power Authority, ARCA entered into two agreements dated September 24, 2007 with the plaintiff, Amtim Capital Inc. ("Amtim"), for certain services set out in the agreements.

[4] The consideration to be paid to Amtim under the agreements is essentially the greater of 4 per cent of gross sales or 25 per cent of net profit of the operations. The net profit component is based, in part, upon ARCA's total cost of its Canadian operations, all to be calculated consistent with the United States accounting principles known as generally accepted account principles. Under the agreements, as of March 18, 2013, Amtim has been paid the sum of $2,134,710.35.

[5] Purportedly in accordance with the agreements and consistent with the U.S. generally accepted accounting principles, ARCA allocated various expenses such as administrative expenses, SEC and NASDAQ compliance expenses and [page381] accounting expenses (hereinafter referred to as "corporate overhead") to each of its separate divisions and subsidiaries so as to, among other reasons, maintain and record the profitability of each of the said divisions and subsidiaries. A dispute arose between ARCA and Amtim regarding how much, if anything, ARCA owes to Amtim pursuant to the agreements. This dispute flows from the disagreement regarding the proper determination and allocation of corporate overhead from ARCA to ARCA Canada.

[6] Amtim is an Ontario corporation whose business is conducted primarily in Ontario and elsewhere in Canada. The contracts at issue expressly state that they involve Amtim's provision of "services only within the country of Canada". Amtim has never done any work in Minnesota or any other state in the U.S.A.

[7] The issue in dispute in this Ontario action is the amount of compensation to be paid to Amtim for services that it has rendered and continues to render only in Canada. The calculation of that compensation is to be based on revenue earned from the Canadian operation, the net profit from the Canadian operations, the total cost of the Canadian operations and collection fees for units collected in respect of Canadian operations.

[8] The agreements expressly provide that they are not only to be governed by Ontario law, but are to be "enforced" by Ontario law.

[9] Amtim services are provided to ARCA Canada, a wholly owned subsidiary of ARCA.

[10] Amtim has never conducted any form of business in the State of Minnesota and all of the services where compensation is sought were provided in Ontario and elsewhere in Canada.

[11] After the dispute arose, ARCA and Amtim participated in a mediation aimed at resolving the dispute. That mediation was not successful. In February 2011, the parties discussed participating in arbitration; however, ARCA and Amtim could not agree on the locale of the arbitration. ARCA cited the advantage of pursuing the arbitration in Minnesota both as a private remedy and at the location where virtually all the evidence (both records and witnesses) was located. Amtim indicated it would not be willing to arbitrate the matter in any locale other than Ontario. There was no agreement reached in this regard.

[12] Amtim's counsel in February 2011 advised ARCA's counsel that the next step was litigation but offered to consider arbitrating in Canada.

[13] ARCA then commenced the U.S. action in Minnesota on or about March 14, 2011 by filing a summons and complaint. In the U.S. action, ARCA sought declaratory relief from the court as [page382] to the proper method for the determination and allocation of ARCA's corporate overhead to ARCA Canada. Amtim did not raise any defences in the U.S. action or make any claims or counterclaims against ARCA. However, on or about March 29, 2011, Amtim commenced the Ontario action to address the issue of amounts owing pursuant to the agreements. The claim in [the] Ontario action sought positive coercive payment out of the contracts in the sum of $1.6 million.

[14] On or about April 18, 2011, Amtim served and filed a motion to dismiss the U.S. action on the grounds that the United States District Court lacked personal jurisdiction over Amtim and, alternatively, the United States was not the proper forum for the adjudication of the dispute in accordance with the principles of forum non conveniens. By notice of motion dated May 30, 2011, ARCA moved for an order staying the Ontario action and for an order setting aside the service of the statement of claim, all on the basis of forum non conveniens.

[15] On August 20, 2011, the United States District Court denied Amtim's motion. That court found that its personal jurisdiction over Amtim and the doctrine of forum non conveniens did not preclude the adjudication of ARCA's claims in Minnesota.

[16] Amtim did not file an answer to ARCA's complaint and therefore on or about December 9, 2011, ARCA obtained default judgment in the U.S. action. Amtim did not seek appellant review of the U.S. jurisdiction judgment by appealing the default judgment.

[17] On January 23 and 26, 2012, ARCA's motion to stay the action on the basis of forum non conveniens was argued before Gordon J. of the Superior Court of Justice, who dismissed ARCA's motion by order dated February 21, 2012 despite the fact that ARCA had obtained default judgment in Minnesota.

[18] ARCA appealed the order of Gordon J. dated February 21, 2012 [[2012] O.J. No. 958, 2012 ONSC 1214 (S.C.J.)] on or about September 19, 2012, the Court of Appeal heard ARCA's appeal of Gordon J.'s order and, by order of October 3, 2012 [[2012] O.J. No. 4608, 2012 ONCA 664], the appeal was dismissed. In his reasons, Goudge J.A. wrote [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[.]

[19] The motion materials filed by ARCA in the Minnesota action in support of ARCA's application for default judgment [page383] appear to be grounded upon the fact that Amtim did not attorn to the jurisdiction of the Minnesota court and did not file an answer to the ARCA complaint. The materials made no mention of the pending Ontario proceedings. The materials did not set forth before the court any evidence or data indicating the formula, methods and manner in which ARCA calculated the allocation of its corporate overhead to the Canadian operations, nor did they indicate the formula, methods, manner or financial calculations by which Amtim's compensation was calculated. It is questionable, therefore, whether the Minnesota court considered the merits of the compensation dispute.

Law

[20] The doctrine of res judicata holds that causes of action adjudicated by a court in finality cannot be the subject of relitigation.

Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460, [2001] S.C.J. No. 46, p. 474 S.C.R., at para. 20.

[21] In addition to the principle that a judgment between parties to a litigation is conclusive in regards to actual issues brought before the court, a judgment is also conclusive upon any issues which the parties, in exercising reasonable diligence, should have brought forward on that occasion.

Las Vegas Strip Ltd. v. Toronto (City) (1996), 1996 8037 (ON SC), 30 O.R. (3d) 286, [1996] O.J. No. 3210 (Gen. Div.), at p. 296 O.R., affd (1997), 1997 3841 (ON CA), 32 O.R. (3d) 651, [1997] O.J. No. 1033 (C.A.).

[22] Under the doctrine of issue estoppel, any right, question or fact put into issue and directly determined by the court, or any right, question or fact fundamental to the decision arrived at, cannot be retried in subsequent proceedings between the same parties, even though a different cause of action is asserted.

Danyluk, supra, p. 476 S.C.R., at para. 24.

[23] However, as a judicial doctrine developed to serve the ends of justice, res judicata should not be applied mechanically to work an injustice. The underlying purpose is to balance the public interest in the finality of litigation with the public interest in ensuring that justice was done on the facts of a particular case. A court retains the discretion to refuse to apply res judicata or issue estoppel in any particular case.

Danyluk, supra, paras. 1, 19, 33, 35, 62-67 and 80. [page384]

[24] The doctrine of issue estoppel is designed as an implement of justice and a protection against injustice, and calls upon the exercise of judicial discretion to achieve fairness according to the circumstances of each case and to avoid injustice.

Danyluk, supra, para. 83.

Issues

[25] ARCA argues that Amtim had the opportunity to appear and defend in the U.S. action and to appeal the U.S. action and failed to do so, and that, as a result, Amtim is precluded from asserting claims that it ought to have put forward in the U.S. action. To allow Amtim to continue with the Ontario action would run counter to the public interest principle of finality of litigation as well as the principle that no party should be subject to proceeding more than once for the same cause.

[26] ARCA states that the preconditions with respect to the operation of issue estoppel have been met and asks the court to exercise its judicial discretion for an order dismissing or, in the alternative, staying the Ontario action.

[27] Amtim argues that whether or not the technical requirements of res judicata have been established in the particular circumstances of this case the dismissal of this action, on the basis of the res judicata doctrine, would be inconsistent with the ends of justice. Depriving an Ontario company of a hearing on the merits in this province of a claim for compensation that it is integrally tied to Ontario while simultaneously condoning ARCA's use of a U.S. declaratory judgment in Ontario for a purpose in circumvention of the very criteria governing the granting of declaratory relief.

Analysis

[28] A foreign judgment will only be recognized and enforced in Canada where the foreign court has jurisdiction according to Canadian conflict of law rules. Consequently, the proponent of a foreign judgment will have to establish that (1) the defendant consented, submitted or otherwise attorned to the jurisdiction of the foreign court; (2) that the defendant was resident or present in the foreign territory at the commencement of the proceedings; or (3) that there was a "real and substantial connection" before the foreign court and the defendant or cause of action.

Beals v. Saldanha, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, 2003 SCC 72. [page385]

[29] This "real and substantial connection" test requires that a significant connection exists between the causes of action and the foreign court. A defendant can reasonably be brought within the embrace of a foreign jurisdictions law where he or she has participated in something of significance or was actively involved in that foreign jurisdiction. A fleeting or relatively unimportant connection will not be enough to give a foreign court jurisdiction. The connection to the foreign jurisdiction must be a substantial one.

Beals v. Saldanha, supra, para. 32.

[30] The Minnesota default judgment was obtained under the Declaratory Judgment Act. Under this Act, U.S. federal courts have been conferred with unique and substantial discretion in deciding whether to declare the rights of litigants. The applicable law in the United States indicates that the District Court should consider whether a declaratory judgment is being used merely as a device for procedural fencing to provide an alternate forum in a race to res judicata. Moreover, in examining the propriety of a declaratory action, a court may realign the parties to reflect the actual controversy and consider what is the natural plaintiff. Where a declaratory suit by a plaintiff is effectively a defence, or it appears that granting the relief sought could effectively deny an injured party, its otherwise legitimate choice of forum and a time for suit, no declaratory judgment should issue and such action should be dismissed as a tactical maneuver calculated to deny a potential plaintiff of its traditional rights.

Sikorsky v. Lloyds, unreported, United States District Court 2011; Wyeth v. Wolfe, unreported, United States District Court Action No. 08-0754.

[31] It has been held that "[U.S.] courts take a dim view of declaratory plaintiffs who file their suits mere days or weeks before the coercive suit filed by the natural plaintiff, and who seem to have done so for the purpose of acquiring a favourable forum".

Sikorsky v. Lloyds, supra, pp. 30-31.

[32] As I stated above, the motion materials filed by ARCA in the Minnesota action in support of ARCA's application for default judgment were grounded solely upon the fact that Amtim did not attorn to the jurisdiction of the Minnesota courts and did not file an answer to the ARCA complaint. The materials made no mention of the pending Ontario proceedings. Similarly, [page386] the materials do not set forth before the court any evidence or data indicating the formula, methods and manner in which ARCA calculated the allocation of its corporate overhead to the Canadian operations, nor do they indicate the formula methods, manner or financial calculations by which Amtim's compensation was calculated. No court has yet considered the merits of this compensation dispute.

[33] In the case of Wolfe v. Pickar, [2011] O.J. No. 2035, 2011 ONCA 347, the motion judge and the Court of Appeal expressly and impliedly recognized the impropriety of allowing the natural defendant to employ declaratory judgment in a race to res judicata as a preemptive strike against a natural plaintiff.

[34] A court may properly consider the role that each of the parties played in each of the proceedings in assessing whether the parties should be considered to be the same parties for the purpose of invoking res judicata or issue estoppel.

Wolfe v. Wyatt, [2010] O.J. No. 2434, 2010 ONSC 2368 (S.C.J.); 1117322 Ontario Inc. v. Telus Corp., [2010] O.J. No. 1415, 2010 ONCA 262.

[35] In this action, Amtim is not subjecting ARCA to a proceeding for the same cause as the Minnesota proceedings. Here, Amtim is plaintiff seeking damages on the basis of a calculation of moneys owing, whereas the Minnesota proceedings were instigated by ARCA and were for a declaration that was granted without litigating the specific issues outstanding between the parties.

[36] I find that the "real and substantial connection" in this case is with Ontario as Amtim's services were provided to ARCA Canada in Ontario, ARCA Canada being a wholly owned subsidiary of ARCA set up for the purposes of carrying on business in Ontario. Amtim has never had any genuine contact with the State of Minnesota, [and] has never conducted any form of business in that state. All of the services where compensation is sought were provided in Ontario and elsewhere in Canada and the agreements between the parties especially provide that they are not only to be governed by Ontario law but are also to be "enforced" by Ontario law. I find that ARCA's Minnesota judgment premised upon the Minnesota long-arm statute and the establishment of "minimum contacts" with that state is insufficient to ground jurisdiction according to Canadian conflict of laws rules and that ARCA's negative declaratory default judgment [page387] has no enforcement capability except as a defensive response to a positive claim by Amtim.

[37] As the issues were not, in my view, adjudicated on the merits in the Minnesota action, I find that the doctrine of issue estoppel or res judicata do not apply in this case. If I am wrong on this analysis, I nevertheless have a limited discretion to refuse to apply the equitable doctrine of issue estoppel or res judicata and I am of the view that the exercise of such discretion in this case would advance the ends of justice. Giving the Minnesota declaratory judgment effect in the circumstances would give the appearance of sanctioning forum shopping, something the courts ought not to do.

[38] I agree with the plaintiff's submission that a dismissal of this 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. The defendant's motion is therefore dismissed.

[39] So far as costs are concerned, if the parties cannot agree on costs, they may make submissions in writing with the plaintiff's submissions being submitted within 15 days of the release of these reasons, the defendant's submissions to follow within 15 days of receipt of the plaintiff's submissions or the expiration of the time for plaintiff's submissions, and the plaintiff to have ten days to reply to the defendant's submissions on costs. Such submissions to be restricted to five pages, in the font normally required for court documents.

Application dismissed.

End of Document