Orthoarm Incorporated v. American Orthodontics Corporation
[Indexed as: Orthoarm Inc. v. American Orthodontics Corp.]
Ontario Reports
Ontario Superior Court of Justice,
Firestone J.
March 30, 2015
125 O.R. (3d) 312 | 2015 ONSC 1880
Case Summary
Conflict of laws — Forum conveniens — Ontario corporation suing Wisconsin corporation in Ontario for failure to make royalty payments — Licence agreements signed by parties in both Ontario and Wisconsin — Ontario law presumed to apply to agreements — Plaintiff's main witness residing in Ontario — Defendant failing to establish that Ontario was not forum conveniens.
Conflict of laws — Jurisdiction — Ontario corporation suing Wisconsin corporation in Ontario for failure to make royalty payments — Defendant having three full-time employees in Ontario who sold its products directly to Ontario orthodontists — Presumptive connecting factor existing as defendant carried on business in Ontario — Defendant failing to rebut presumption of jurisdiction.
The plaintiff, an Ontario corporation, brought an action in Ontario against the defendant, a Wisconsin corporation, for failure to make royalty payments. The defendant brought a motion for an order dismissing or staying the action on the grounds that the Ontario court lacked jurisdiction simpliciter or, in the alternative, was not the convenient forum.
Held, the motion should be dismissed.
The defendant had an actual and ongoing physical presence in Ontario through its three full-time employees who lived in Ontario and sold the defendant's products directly to Ontario orthodontists. A presumptive connecting factor existed as the defendant carried on business in Ontario. The defendant failed to rebut the presumption of jurisdiction.
The licence agreements were signed by the parties in both Ontario and Wisconsin. There was a presumption that Ontario law applied. The plaintiff's primary witness resided in Ontario. There was insufficient evidence to determine whether the defendant would suffer a loss of juridical advantage. The defendant failed to establish that Ontario was not forum conveniens.
Club Resorts Ltd. v. Van Breda, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17, 291 O.A.C. 201, 2012EXP-1452, J.E. 2012-788, EYB 2012-205198, 429 N.R. 217, 343 D.L.R. (4th) 577, 91 C.C.L.T. (3d) 1, 10 R.F.L. (7th) 1, 17 C.P.C. (7th) 223, 212 A.C.W.S. (3d) 712, apld [page313]
Cases referred to
American Home Assurance Co. v. Temple Insurance Co. (2009), 2009 CanLII 1648 (ON SC), 94 O.R. (3d) 534, [2009] O.J. No. 249, [2009] I.L.R. I-4787, 71 C.C.L.I. (4th) 278 (S.C.J.); Bitterman v. Knoll, Inc., [2005] O.J. No. 3791, [2005] O.T.C. 767, 142 A.C.W.S. (3d) 62 (S.C.J.); Young v. Tyco International of Canada Ltd. (2008), 92 O.R. (3d) 161, [2008] O.J. No. 4046, 2008 ONCA 709, 65 C.P.C. (6th) 39, 69 C.C.E.L. (3d) 52, 300 D.L.R. (4th) 385, 170 A.C.W.S. (3d) 506
Statutes referred to
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 17.06, 21.01(3)(a), 37
Authorities referred to
Castel, Jean-Gabriel, and Janet Walker, Canadian Conflict of Laws, 6th ed., looseleaf, 7.4 (Markham, Ont.: Butterworths, 2005-)
MOTION for an order dismissing or staying an action.
Gary H. Luftspring and Andrea J. Sanche, for plaintiff.
Brian P. Isaac and Cameron P. Weir, for defendant.
[1] FIRESTONE J.: — The defendant brings this motion pursuant to rules 17.06, 21.01(3)(a) and 37 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 for an order dismissing or, in the alternative, staying this action on the grounds that this court lacks jurisdiction simpliciter, or, in the alternative, is not the convenient forum (forum non conveniens) for this action to proceed.
The Parties
[2] The plaintiff, Orthoarm Incorporated ("Orthoarm"), is a business incorporated pursuant to the laws of Ontario with its head office located in Toronto, Ontario. Orthoarm is owned and controlled by Dr. John Voudouris and his family and carries on business as an orthodontic bracket design company.
[3] The defendant, American Orthodontics Corporation ("AOC"), is a privately held company incorporated under the laws of the State of Wisconsin, with its head office in Sheboygan, Wisconsin. AOC carries on business as a manufacturer and seller of orthodontic appliances, including orthodontic brackets, worldwide. AOC carries on business in over 100 countries, including Canada.
[4] Orthoarm brings this action in order to collect royalty payments it claims are due and owing pursuant to the terms of a contract entered into between Orthoarm and AOC. Orthoarm [page314] alleges that such royalty payments were paid by AOC from 2009 until early 2014, when it suddenly and unilaterally stopped making payments owing for the fourth quarter of 2013 onward.
[5] As a result of AOC's failure to both report and make its required payments, Orthoarm seeks, in this action, payment of the licence fee and an accounting for all of AOC's net sales, which it alleges have not been provided in breach of the licence agreements entered into between the parties. Orthoarm further submits that AOC has failed to accurately account for its sales and costs regarding the royalty payments it had been making. As a result it owes additional royalty payments for the net sales made and reported.
Position of the Parties
[6] AOC argues that in this action, Orthoarm claims against a Wisconsin company for breach of a contract arguably made in Wisconsin covered by the laws of Wisconsin. AOC further argues that Orthoram's claims relate to royalty payments under U.S. patents concerning products manufactured by AOC in Wisconsin.
[7] It submits that notwithstanding that it has sales representatives in Ontario and ships its products to dental professionals in Ontario, it has no offices in Ontario and its products are sold F.O.B. Wisconsin. Further, these very parties have previously been involved in litigation in Wisconsin involving the rights and patents at issue in this action. Wisconsin, they argue, is the more convenient forum than Ontario for the issues this action to be adjudicated.
[8] Orthoarm argues that this is a collection action for royalty payments owing to an Ontario company by a Wisconsin company which carries on business in Ontario by virtue of the fact that it has three employees who live in Ontario and sell AOC's product directly to orthodontists in Ontario, to whom AOC directly and specifically advertises. They further argue that the contract (licence agreements) was entered into in Ontario.
[9] Ontario is, they submit, the more convenient forum given that Orthoarm has identified the Ontario witness it intends to call at trial. On the other hand, AOC has only said it intends to call its employees and has provided no particulars regarding how many or who they will be. In addition, Orthoarm argues, there are no current corresponding lawsuits between the parties in Wisconsin. The subject matter of the prior Wisconsin proceedings was unrelated to the issues in this Ontario action. Orthoarm submits that it had no reason to commence its action for payment of royalties in Wisconsin and should be permitted to proceed with its chosen jurisdiction. [page315]
The Law
[10] In Club Resorts Ltd. v. Van Breda, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17, the Supreme Court of Canada outlined the approach taken to determining whether a domestic court should assume jurisdiction over a foreign defendant. The court reaffirmed the two-part test be applied, namely (1) jurisdiction simpliciter and (2) forum non conveniens. Jurisdiction is a legal issue. Forum non conveniens is discretionary.
[11] The approach to be taken on a motion such as this is as follows:
(a) The court is to inquire whether presumptive connecting factors exist between the litigation and the forum. The plaintiff bears the onus of establishing that a presumptive connecting factor exists.
(b) The court is to then decide whether the presumption of jurisdiction resulting from the connecting factors can be rebutted. The defendant bears the onus of rebutting any presumptive connecting factor.
(c) If a presumptive connecting factor exists and has not been rebutted, the court is to assume jurisdiction subject to the application of forum non conveniens.
(d) If a presumptive connecting factor does not exist or if it has been rebutted, the court shall stay or dismiss the action.
[12] In Van Breda, the court stated the goal of this approach is to bring greater clarity and predictability to the jurisdictional analysis.
Jurisdiction Simpliciter -- The "Real and Substantial Connection" Test
[13] The first part of the analysis is to determine whether any one of the four "presumptive connecting factors" exists which would prima facie entitle the court to assume jurisdiction over the dispute. These factors are as follows:
(a) the defendant is domiciled or resident in the province;
(b) the defendant carries on business in the province;
(c) the tort was committed in the province; and
(d) a contract connected with the dispute was made in the province. [page316]
[14] The plaintiff argues that three of the presumptive connecting factors exist in this case, namely
(1) the defendant, AOC, carries on business in Ontario;
(2) the tort, namely, the breach of the common law duty to act honestly in the performance of contractual obligations, was committed in Ontario; and
(3) the contract (licence agreements) was entered into in Ontario.
Does the Defendant, AOC, Carry on Business in Ontario?
[15] In analyzing this issue, the following comment by the Supreme Court of Canada in Van Breda, at para. 87, is instructive:
Carrying on business in the jurisdiction may also be considered an appropriate connecting factor. But considering it to be one may raise more difficult issues. Resolving those issues may require some caution in order to avoid creating what would amount to forms of universal jurisdiction in respect of the tort claims arising out of certain categories of business or commercial activity. Active advertising in the jurisdiction or, for example, the fact that a Web site can be accessed from the jurisdiction would not suffice to establish that the defendant is carrying on business there. The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction.
(Emphasis added)
[16] In my view, it is clear that AOC carries on business in Ontario. It has an actual and ongoing physical presence in Ontario through its three full-time employees who live in Ontario and sell AOC's products in Ontario directly to orthodontists in Ontario. It is the sale of such Ontario products which is in part directly related to the calculation of the royalty payments that are at the core of the dispute between the parties. In addition, AOC advertises in Ontario by way of its attendance at orthodontic trade shows in Ontario. As a result I find that a rebuttable presumption of jurisdiction exists. Only one presumptive connecting factor is required to establish a prima facie entitlement to have this court assume jurisdiction over the dispute. As a result, I need not consider the other factors upon which Orthoarm relies.
Has the Presumption of Jurisdiction Been Rebutted by the Defendants?
[17] The burden of rebutting the presumption of jurisdiction rests with the defendant and moving party, AOC. AOC must establish facts demonstrating that the presumptive connecting factor does not point to any real relationship between the subject [page317] matter of the litigation and the forum, or points only to a weak relationship between them (Van Breda, at para. 95)
[18] In Van Breda, at para. 96, the Supreme Court stated in part as follows:
And where the presumptive connecting factor is the fact that the defendant is carrying on business in the province, the presumption can be rebutted by showing that the subject matter of the litigation is unrelated to the defendant's business activities in the province. On the other hand, where the presumptive connecting factor is the commission of a tort in the province, rebutting the presumption of jurisdiction would appear to be difficult, although it may be possible to do so in a case involving a multi-jurisdictional tort where only a relatively minor element of the tort has occurred in the province.
[19] In this case, I find the presumptive connecting factor of carrying on business in the province has not been rebutted. The subject matter of this litigation, namely, the collection of royalty payments in accordance with the contract (licence agreements), is directly related to moneys made through AOC's worldwide sales which include sales in Ontario. It therefore cannot be said that the subject matter of the litigation is "unrelated to" AOC's business activities in Ontario.
[20] Based on the above, I find that this court has jurisdiction simpliciter over this action.
Forum Non Conveniens
[21] Where jurisdiction is established, this court may stay the proceedings on the basis of forum non conveniens. A clear distinction is to be drawn between the existence and the exercise of jurisdiction. The obligation is on the defendant to invoke forum non conveniens and demonstrate why the court should decline to exercise its jurisdiction. The court is to ensure that the parties are treated fairly and that the process for resolving their litigation is efficient. The defendant must show that the alternative forum is "clearly" more appropriate. The factors that a court may consider in deciding whether to apply forum non conveniens may vary depending on the context (Van Breda, at paras. 100-10).
[22] In Young v. Tyco International of Canada Ltd. (2008), 2008 ONCA 709, 92 O.R. (3d) 161, [2008] O.J. No. 4046 (C.A.), at para. 26, the court set out the list of factors the court is to consider in exercising their discretion. Justice Laskin stated as follows:
Decisions on forum non-conveniens motions are exercises of judicial discretion. Typically, in exercising their discretion, motion judges consider a list of factors now well established in the case law. These factors are used to assess the connections to each forum. They include: [page318]
(1) the location where the contract in dispute was signed;
(2) the applicable law of the contract;
(3) the location of witnesses, especially key witnesses;
(4) the location where the bulk of the evidence will come from;
(5) the jurisdiction in which the factual matters arose;
(6) the residence or place of business of the parties; and
(7) the loss of legitimate juridical advantage.
[23] Justice Laskin went on to state, at para. 27, that these factors are not exhaustive, although in practice they are the ones typically considered. Some of these factors may not be relevant to a given case. Motion judges assign each factor the weight they consider appropriate to the case. The overall balancing of these factors reflects the discretionary nature of the decision regarding forum non conveniens. It is also important to note that the forum non conveniens analysis is not a scientific or mathematical one.
[24] Justice Laskin in the Young decision highlighted three other principles which should guide a motion judge's exercise of discretion in the forum non conveniens analysis. These can be summarized as follows.
(1) The standard to displace the plaintiff's chosen jurisdiction is high. Before Ontario motion judges decline jurisdiction, the existence of a more appropriate forum must be clearly established to displace the forum selected by the plaintiff (at para. 28).
(2) The balancing of the relevant factors should aim to achieve the twin goals of efficiency and justice (at para. 29).
(3) Because the forum non-conveniens motion is typically brought early in the proceedings, a prudential, not an aggressive, approach to fact-finding should be adopted (at para. 31).
[25] Based on the facts in this case, I am satisfied for the reasons set forth below that this court should not decline to exercise its jurisdiction on the basis of forum non conveniens. In my view, Ontario has the closest connection with the action and is, based on the evidentiary record before me, the more appropriate forum to hear this case.
[26] The licence agreement(s) were signed by the parties both in Ontario and Wisconsin and Ontario. Orthoarm intends to call Dr. John Voudouris, its principal, as its primary witness. In addition, Orthoarm may call Dr. Voudouris' wife, Dora Voudouris, [page319] as well as his Ontario accountant. AOC advises that all current employees involved in dealing with the agreement are resident in Wisconsin, including employees involved in preparing and sending sales reports royalty payments to Orthoarm under the agreements at issue. However, no specifics were given regarding the names and number of witnesses AOC intends to call at trial.
[27] There was previously litigation between the parties in Wisconsin. However, all parties agree that there is currently no ongoing litigation between the parties in Wisconsin to which this action could be joined.
[28] Regarding the applicable law of the contract, the following principle was affirmed by the court in American Home Assurance Co. v. Temple Insurance Co. (2009) 2009 CanLII 1648 (ON SC), 94 O.R. (3d) 534, [2009] O.J. No. 249 (S.C.J.), at para. 38, citing Castel and Walker, Canadian Conflict of Laws, 6th ed, looseleaf, 7.4 (Markham, Ont.: Butterworths, 2005- ): "[i]f foreign law is . . . not proved or is insufficiently proved, the court will apply the lex fori. . . . [In] all cases where foreign law is not proved, the lex fori prevails because it is the only law available ." There is no evidence in the record regarding why Wisconsin law would apply. As a result, there is a presumption that the law to be applied is the same as the lex fori. It is important to note that while the preamble of the original 1992 licence agreement states that it was made and entered into under and pursuant to the laws of the State of Wisconsin, neither that agreement nor the 2013 amended licence agreement contains a forum selection clause. It is also important to take judicial notice of the fact that Ontario courts can apply foreign law: Bitterman v. Knoll, Inc., [2005] O.J. No. 3791, [2005] O.T.C. 767 (S.C.J.).
[29] There is insufficient evidence to determine whether Orthoarm would suffer a loss of juridical advantage.
[30] AOC has the burden of proof to establish that it would be more efficient for this court to decline to exercise jurisdiction on the basis that Wisconsin is better suited to hear this action. On the record before me, AOC has not met its burden on the basis forum non conveniens to displace Orthoarm's choice of forum. As a result, the moving party's motion is dismissed.
[31] The parties agreed that the successful party would receive from the unsuccessful party costs of this motion in the sum of $10,000, plus disbursements and HST. AOC is to pay this sum to Orthoarm within 30 days.
[32] I wish to thank counsel for both the written and oral submissions which were of great assistance to the court.
Motion dismissed.
End of Document