COURT FILE NO.: CV-22-00684143-0000
DATE: 20221011
ONTARIO SUPERIOR COURT OF JUSTICE
RE: North Field Technology Ltd., Applicant
-and-
Project Investors, Inc. d/b/a “Cryptsy” and Paul Vernon, Respondents
BEFORE: Robert Centa J.
COUNSEL: Steven Weisz and Robert Sottile, for the applicants
No one appearing for the respondents
HEARD: October 8, 2022
ENDORSEMENT
[1] The applicant, North Field Technology Ltd. seeks an order recognizing and enforcing a default judgment and several ancillary orders made by the United States District Court, Southern District of Florida in Civil Action No 9-19-cv-80060 against the respondents, Project Investors, Inc. d/b/a “Cryptsy” and Paul Vernon.
[2] North Field brings this application because it has learned that a portion of the cryptocurrency covered by the judgments obtained in Florida is under the control of a company with a place of business in Toronto, Ontario. This application proceeded in writing on an unopposed basis.
[3] For the reasons that follow, I order that service of this proceeding is validated on the respondents and declare that the judgments obtained in Florida be recognized and enforced in Ontario.
Background
[4] Mr. Vernon is the sole director and officer of Cryptsy, which is a Florida corporation. Cryptsy operated an online website where users could exchange, invest, and trade in digital cryptocurrencies.
[5] On January 13, 2016, Brandon Leidel and Michael Wilson commenced a class action against Mr. Vernon and Cryptsy. In the pleadings, which were amended several times, the plaintiffs alleged that:
a. Cryptsy solicited members of the public to create user accounts. Once a new user created an account, Cryptsy assigned the user a unique web address where the user could send his or her Bitcoin or other cryptocurrency to Cryptsy for safeguarding. Once a user’s account contained a cryptocurrency balance, the user could buy, sell, or trade in alternative cryptocurrencies.
b. In May of 2015, it was reported that Cryptsy was not fulfilling certain regulatory requirements. Cryptsy falsely denied the allegations, asserting that it fully complied with all federal regulatory requirements.
c. Between November 2015 and January 13, 2016, Cryptsy users experienced difficulty accessing their accounts. Cryptsy explained that it was investigating third party denial of service attacks on the website.
d. On January 15, 2016, two days after commencement of the class action, Mr. Vernon started directing Cryptsy customers to Cryptsy’s blog, which stated that:
i. approximately US$5 million in client assets disappeared in June 2014;
ii. Cryptsy was insolvent as a result of the disappearance;
iii. Cryptsy had been actively concealing news of the disappearance from governmental and regulatory authorities;
iv. Cryptsy had lied to its customers about the nature of the problems that prevented them from accessing their funds; and
v. Cryptsy had essentially been operating a fraudulent scheme for nearly 18 months where withdrawals from Cryptsy accounts were not funded from the assets purportedly safeguarded in each Cryptsy account holder’s account, but rather, from the company’s profits; and
e. Shortly after the US$5 million in client assets disappeared, Mr. Vernon inexplicably obtained a large amount of cash.
[6] In the class action, the plaintiffs sought relief including damages and restitution, a declaration that the cryptocurrency allegedly stolen by Mr. Vernon was their property, an order returning the stolen cryptocurrency to the plaintiffs, and a permanent injunction.
[7] The plaintiffs made many unsuccessful efforts to serve Mr. Vernon personally with the pleadings and materials in the Florida proceedings. There is some evidence that he may have fled to China. On March 26, 2016, the Florida court found that Mr. Vernon was avoiding service on behalf of himself and Cryptsy and granted the plaintiffs’ motion for service by alternative method. I am satisfied, based on the evidence before me, that the plaintiffs complied with the methods of alternative service permitted by the Florida court.
[8] On April 4, 2016, the Florida court issued a receivership order over Cryptsy, which asserted subject matter jurisdiction over the Florida class action and personal jurisdiction over Cryptsy. The order also froze all of Cryptsy’s assets, over which the Florida court took jurisdiction and possession. The Florida court permitted the plaintiffs to serve Mr. Vernon and Cryptsy by serving the receiver.
[9] Cryptsy and Mr. Vernon did not respond to the class action and were noted in default in March and May 2016, respectively. Thereafter, United States District Judge, the Hon. Kenneth A. Marra, issued a series of judgments against Cryptsy and Mr. Vernon:
a. the Amended Final Default Judgement of the Florida Court, signed on May 24, 2021, providing certain monetary and declaratory relief (the “Final Florida Judgment”);
b. the Order Approving Assignment and Clarifying the Final Judgement, signed on September 18, 2020 (the “Assignment Order”);
c. the Order Granting Plaintiff and Assignee’s Motion for Asset Freeze Injunction and Order to Transfer the Stolen Bitcoin to Assignee, on June 22, 2021 (the “Permanent Injunction Order”);
d. the Order approving an amendment to the Assignment Agreement signed on June 3, 2021 (the “Assignment Clarification Order”); and
e. the Order Granting North Field Technology Assignee’s Motion to Clarify the Scope of the Amended Judgement and Permanent Injunction of the United States District Court, Southern District of Florida, signed on April 13, 2022 (the “Clarification Order” and, collectively, the “Florida Judgements”)
[10] These orders provided several kinds of relief, including authorizing the plaintiffs to recover the stolen cryptocurrency assets, assigning the default judgment to the applicant North Field, awarding US$8.2 million in damages, plus prejudgment interest, and permanently restraining the defendants from transferring any of the stolen cryptocurrency assets. Importantly for the purposes of this application, the Florida court also ordered any third parties that dealt with the stolen cryptocurrency assets to freeze them and to take all necessary steps to facilitate the freezing the assets.
Issue one: Service is validated
[11] I validate the service of the materials in this application on Mr. Vernson and Cryptsy pursuant to rule 16.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[12] The applicant served the respondents with the application materials by delivering copies to Mr. Vernon’s email address and at his last known address in Delray Beach.
[13] The plaintiffs in the Florida class action made significant efforts to serve Mr. Vernon and Cryptsy personally. The Florida court has already found that the respondents were avoiding service and that service by these means “would provide Vernon with sufficient notice and opportunity to be heard in the Florida Action.”
[14] I find that the materials in this application were served in a manner such that they would have come to the notice of the respondents, except for their own attempts to evade service. I make an order validating the service of the documents in this proceeding.
Issue two: the applicant meets the test for recognition and enforcement of a foreign judgment
[15] I find that the applicant has met the test for recognition and enforcement of the Florida Judgments. The Florida court had jurisdiction to issue the Florida Judgments, which are final, and the respondents have raised no defence to recognition and enforcement of the Florida Judgments.
[16] To enforce a foreign judgment, the Ontario court must be satisfied that:
a. the foreign court took jurisdiction according to Canadian conflict of law rules; and
b. the foreign judgment is final and conclusive; and
c. none of the applicable defences are made out fraud, a denial of natural justice or that the foreign judgment or order is contrary to Canadian public policy.[^1]
[17] The Ontario court is not to adjudicate the underlying claim that gave rise to the foreign judgment even where the foreign judgment was obtained through default proceedings instead of a trial.[^2] The Ontario court has jurisdiction to enforce a foreign injunction where the order is from a court of competent jurisdiction, is final and conclusive, and is sufficiently precise.[^3]
A. The Florida Court had jurisdiction to issue the Florida Judgments, which are final
[18] I find that the Florida court properly assumed jurisdiction, in the sense that it had a real and substantial connection with the subject matter of the dispute and with the defendants.[^4] The evidence on this point is overwhelming and includes that:
a. Mr. Vernon lived and owned real estate in Florida, he litigated his matrimonial dispute in the courts of Florida and provided a service address in the state;
b. Mr. Vernon was the sole director and officer of Cryptsy; and
c. Cryptsy was a Florida corporation with a physical presence in Delray Beach Florida.
[19] It is reasonable to expect that Mr. Vernon and Cryptsy would be called to answer the Florida proceedings in that forum. I find that the Florida court had jurisdiction over the defendants and the dispute.
[20] I also find that the Florida Judgments are final. There appear to be no further steps required in the Florida proceedings. The Florida Judgments are final, not interlocutory. While there may be steps available to challenge the decisions in the courts of Florida, that does not make them less final in the sense necessary for recognition and enforcement.
[21] Traditionally, to be recognizable and enforceable, a foreign judgment had to be for a debt, or definite sum of money and final and conclusive.[^5] In Pro Swing, however, the Supreme Court of Canada held that non-monetary foreign judgments are also be capable of being recognized and enforced in Canada. At paragraph 30, the Supreme Court of Canada described some of the factors to consider in determining whether a foreign equitable order should be enforced in Canada. The relevant factors on this proceeding are:
a. Are the terms of the order clear and specific enough to ensure that the respondents will know what is expected from them?
b. Is the order limited in its scope and did the originating court retain the power to issue further orders?
c. Is the enforcement the least burdensome remedy for the Canadian justice system?
d. Are any third parties affected by the order?
e. Will the use of judicial resources be consistent with what would be allowed for domestic litigants?
[22] All of these factors line up in favour of enforcing the Florida Judgments. The terms of the injunctions are simple, clear, and specific. It would be obvious to the respondents what they cannot do. The Florida Judgments are sufficiently limited in scope while recognizing the that the worldwide and portable nature of the cryptocurrencies. Enforcing this order does not place an undue burden on the Ontario court system. The third parties affected by this order are prepared to cooperate with an Ontario order. The order does not place expensive, extensive, or unfair burdens on the third parties. Finally, enforcement of the Florida Judgments court order is consistent with the types of orders that would be allowed for domestic litigants.
[23] I have no concerns about the declaratory relief contained in the foreign judgment. In my view that relief is necessary and appropriate to vindicate the interests of the plaintiffs in the Florida proceeding and poses no barrier to recognition and enforcement.
B. The respondents have not established any of the defences to recognition and enforcement
[24] The only recognized defences to an enforcement proceeding are:
a. the judgment was obtained by fraud;
b. the judgment involved a denial of natural justice; or
c. enforcement of the judgment is contrary to public policy.[^6]
[25] There is no evidence before me of fraud. The respondents did not defend the Florida action against them. The pleadings and evidence filed by the plaintiffs in the Florida class action became the facts that were the basis of the Florida Judgments.
[26] There is also no evidence that the Florida court failed to provide minimum standards of fairness to the respondents. The burden of alleging unfairness in the foreign legal system rests with the defendant in the foreign action.[^7] The respondents needed to lead evidence to prove on a balance of probabilities that the foreign proceedings were contrary to Canadian notions of fundamental justice. They presented no such evidence. The Florida Judgments are from a legal system similar, but not identical, to our own. The Supreme Court of Canada accepted the fairness of a default proceeding in the Florida court system in Beals. In my view, the defence of natural justice does not arise in this case.
[27] Finally, the enforcement of this foreign judgment is completely consistent with the Canadian concept of justice. The public policy defence turns on whether the foreign law underlying the judgment is contrary to our view of basic morality.[^8] This case raises no such concerns. The plaintiffs in the Florida class action sought redress for fraud and the theft of their property, concepts very familiar to the law of Ontario. The relief granted by the Florida court is very similar to the relief that would have been granted had the action been brought successfully in Ontario.
[28] I find that none of the defences to the recognition of the Florida judgments arise in this case.
Order
[29] For these reasons, I have signed an order that:
a. validates the service of the materials filed for use on this application;
b. declares that the Final Florida Judgment, the Permanent Injunction Order, the Clarification Order, the Assignment Order, and the Assignment Clarification Order are recognized and enforced;
c. requires the respondents pay to the applicant an amount in Canadian currency equivalent to the US$8,888,788.76 representing the principal amount and prejudgment interest thereon owing under the Final Florida Judgment in accordance with s. 121 of the Courts of Justice Act, R.S.O. 1990, c. C.43.
d. requires the respondents to pay to the applicant an amount in Canadian currency equivalent to the post-judgment interest owing under the Florida Judgment, in accordance with s. 121 of the Courts of Justice Act.
[30] Counsel for the applicant is directed to deliver this endorsement and the order to the respondents in due course, using the same methods used to serve the other material in this proceeding.
Costs
[31] Fixing costs is a discretionary decision under section 131 of the Courts of Justice Act. In exercising my discretion, I may consider the result in the proceeding, and the factors listed in rule 57.01. These factors include the principle of indemnity (rule 57.01(1)(0.a)), the amount claimed and recovered (rule 57.01(1)(a)), and the complexity of the proceeding (rule 57.01(1)(c)).
[32] In exercising my discretion to fix costs, I must consider what is fair and reasonable for the unsuccessful party to pay in this proceeding and balance the compensation of the successful party with the goal of fostering access to justice: Boucher v Public Accountants Council (Ontario) (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.) at paras. 26 and 37.
[33] I have reviewed the costs outline of the applicant. I fix the costs of the motion on a partial indemnity scale at $30,000, inclusive of disbursements and Harmonized Sales Tax, and order the respondents to pay that amount to the applicant within 30 days of the date of this order.
Robert Centa J.
Date: October 11, 2022
[^1]: Beals v. Saldanha, 2003 SCC 72, [2003] 3 SCR 416; Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 SCR 612.
[^2]: Chevron Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 SCR 69, at paras. 43-44; Beals, at para 15 and 31.
[^3]: Pro-Swing, at para. 31.
[^4]: Beals, at para. 19
[^5]: Pro-Swing, para. 10;
[^6]: Beals, at paras. 39 to 42.
[^7]: Beals, at paras. 59 to 61.
[^8]: Beals, at para. 71.