Court File and Parties

COURT FILE NO.: CV-18-00607727 DATE: 20190702 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: RYAN ULC Plaintiff – and – FOREVER 21, INC. and FOREVER XXI, ULC Defendants

Counsel: Douglas Stewart and Matthew Bradley, counsel for the Applicant David Woodfield, counsel for the defendants

HEARD: JUNE 24, 2019

G. DOW, J.

REASONS FOR DECISION

[1] The defendants, Forever 21, Inc. and Forever XXI, ULC seek a stay of this action or the Statement of Claim be struck out on the basis of a duplicative proceeding commenced in California. The dispute arises over a contract entered into between the plaintiff, Ryan ULC and Forever 21, Inc. which is the parent company of Forever XXI, ULC, a Nova Scotia corporation. For my purposes, there is little or no dispute about the following:

1. the purpose of the contract was for Ryan ULC to secure HST and GST rebates from the Canada Revenue Agency on sales made in the approximately 50 retail operations of the defendants across Canada;
2. about one half of the retail operations in Canada are situate in Ontario;
3. the head office of Ryan ULC is in Mississauga;
4. in negotiating the contract, Ryan ULC dealt with representatives of Forever 21, Inc., the latter whom are all situate in Los Angeles;
5. Ryan ULC had employees based in Calgary, described as field representatives, who attended in Los Angeles where the financial records required to be reviewed to complete the contract were kept;
6. the contract, dated June 29, 2015, was signed by Beth Jain, Chief Financial Officer at the time of Forever 21, Inc. in Los Angeles and by Brent Louie, electronically and based in Calgary on behalf of Ryan ULC;
7. the contract document does not provide for the law of any jurisdiction to govern any dispute about terms or performance of the contract;
8. the dispute arises over an invoice dated December 21, 2016 where Ryan ULC charged Forever XXI, ULC $1,610,624.58 of which a portion was paid leaving a balance in dispute of $1,035,006.58;
9. on March 28, 2018, Forever 21, Inc. issued an action in the Superior Court in the County of Los Angeles against Ryan ULC seeking declaratory relief that it is not required to pay the outstanding amount;
10. on June 29, 2018, Ryan ULC responded by filing its Answer and Cross-Complaint disputing the request for declaratory relief and advancing a claim for the breach of the contract and payment of the $1,035,006.58 without raising any issue as to the jurisdiction of the Superior Court in the County of Los Angeles;
11. the Statement of Claim issued by Ryan ULC in this court was not issued until October 26, 2018;
12. this motion dated February 8, 2019 was originally returnable May 15, 2019;
13. in a Supplementary Motion Record dated April 8, 2019, the defendants served an affidavit of a California trial lawyer who opined the conduct of Ryan ULC in the California action amounted to waiver of its right to challenge that court’s jurisdiction over the matter;
14. in a further Supplementary Motion Record dated June 18, 2019, the defendants detailed efforts by them (in what was submitted by Ryan ULC to be a dormant action) to move the action along with regard to production of documents, their confidentiality, the scheduling of examination of the parties, a schedule to complete interlocutory steps before (what I would call) a proposed trial date of October 23, 2019 for five days;
15. it remains open for Ryan ULC to seek an adjournment or “continuance” of any event on proper material to the Superior Court in the County of Los Angeles action;
16. the jurisdiction of the Ontario Superior Court of Justice over the subject matter is not in dispute given Forever 21, Inc. admits it does business in the province; and
17. Ryan ULC will discontinue its Cross-Complaint in the Superior Court in the County of Los Angeles if this action is not stayed.

Analysis

[2] The determination of this issue appears to require an examination of which jurisdiction is the convenient forum. With regard to whether the parties meet the three criteria established in Club Resorts Ltd. v. Van Breda 2012 SCC 17 (at paragraphs 77 and 122) it is clear both parties are present in the jurisdiction. It is less clear there is a real and substantial connection between the subject matter of this litigation and this forum although by having about one half of 50 retail outlets in Ontario generating sales upon which HST is payable, there is at least a significant connection. That is, it is rebates on HST paid and a fee for identifying same which is the subject matter of the contract and the legal dispute. Forever 21, Inc., a Delaware Corporation carrying on business in Los Angeles does not accept the jurisdiction of this court.

[3] As a result, the proper legal test appears to be an evaluation of the relevant considerations, six of which are identified in Club Resorts Ltd. v. Van Breda, supra (at paragraph 105).

[4] With regard to convenience and expense for the parties, it appears the witnesses for Forever 21, Inc. are generally situate in or about Los Angeles. The witnesses of Ryan ULC would appear to include some based in the greater Toronto area and also field representatives based in Calgary. The distance between Toronto and Calgary is about twice the distance that between Calgary and Los Angeles. Further, the documentation that gives rise to claim for HST credits is apparently kept at Forever 21, Inc.’s Los Angeles head office. Thus, this appears to favour Forever 21, Inc.

[5] Second, the law to be applied was not specified in the contract. At the source of the dispute, as was submitted to me, is whether portions of what Ryan ULC identified be capable of rebates or tax credits was already known to Forever 21, Inc. and ought not to qualify for the fee contained in the December 21, 2016 invoice. Counsel for Ryan ULC raised a decision in Ontario where the court has noted that the first location where a claim is issued is not determinative (Amtim Capital Inc. v. Appliance Recycling, 2012 ONSC 1214 (at paragraph 35)) which was upheld on appeal (2012 ONCA 664).

[6] The analysis in Amtim Capital Inc. v. Appliance Recycling, supra is also relevant with regard to a subsequent motion and appeal in that matter seeking dismissal or a stay and the consideration needed to be given to avoiding a party seeking declaratory relief to conduct “a pre-emptive strike against a natural plaintiff” (Amtim Capital Inc. v. Appliance Recycling Centers of America, 2014 ONCA 62 (at paragraph 11)). I have such a concern in this matter. However, Ryan ULC has not taken any steps to confront that issue in the Superior Court in the County of Los Angeles litigation. To the contrary, rather than taking legal steps to dismiss or stay that action, it chose to defend and advance a Cross-Complaint. Dismissal of this motion in this jurisdiction does not end or pause the Superior Court of the County of Los Angeles action.

[7] That reality brings me to the third factor which is the desirability to avoid multiple legal proceedings. Granting Forever 21, Inc.’s request for a stay achieves that goal. Dismissing this motion does not. Further, if a stay is granted, it remains open to Ryan ULC to pursue or persuade the Superior Court in the County of Los Angeles that, as the natural plaintiff, its action ought to proceed in this jurisdiction. In those circumstances, a stay in this jurisdiction could be lifted.

[8] Such a result would be positive with regard to the fourth factor and the desirability to avoid conflicting decisions.

[9] The fifth factor of enforcement of or collecting on any judgment would appear to favour granting the stay as a judgment in Superior Court in the County of Los Angeles in favour of Ryan ULC would logically be more directly collectible given Forever 21, Inc. has its head office (and presumably conducts its financial affairs) in that jurisdiction.

[10] Lastly, I have considered the fair and efficient working of the Canadian legal system as a whole. In this regard, counsel for Ryan ULC raised two concerns. The first was that Ontario courts provides for reimbursement of some, if not most of the legal costs incurred from the other side if successful. It was submitted that is not what regularly occurs in Superior Court in the County of Los Angeles. However, the Cross-Complaint by Ryan ULC includes a demand for same. In my view, this is not a sufficient basis to exercise judicial discretion in favour of Ryan ULC.

[11] Second, counsel for Ryan ULC raised the current exchange rate being unfavourable. However, there was no evidence put forward that this made litigation in the Superior Court in the County of Los Angeles more expensive. As a result, it does not assist Ryan ULC.

Conclusion

[12] Based on the above analysis, I conclude, that overall, the factors to be considered favour Forever 21, Inc. and Forever XXI, ULC and grant the stay sought in the Notice of Motion subject to further order of this Court.

[13] The parties agreed the successful party should be awarded it costs fixed in the amount of $15,000.00 inclusive of fees, HST and disbursements and same are payable by Ryan ULC to Forever 21, Inc. and/or Forever XXI, ULC, forthwith.

Mr. Justice G. Dow Released: July 2, 2019