United States v. Yemec: Ontario Court Recognizes "New" Impeachment Defence to Enforcement of Foreign Judgments

Audi alteram partem (Latin: hear the other side), is a principle of fundamental justice in most legal systems based upon the rule of law that no person should be judged without a fair hearing where each party is given a meaningful opportunity to be heard and to respond to the evidence in a court of law.  In a decision released today, the Ontario Superior Court of Justice in United States v. Yemec has taken a bold step in recognizing the possibility of this new impeachment defence to the enforcement of a foreign judgment in Canada. The procedural history is long and tortuous, so a brief overview is in order.

Litigation History

In United States v. Yemec, (sub nom. United States of America v. Yemec) (2003), 67 O.R. (3d) 394, 233 D.L.R. (4th) 169, [2003] O.J. No. 3863, 2003 CarswellOnt 3762, Gans J. (Ont. S.C.J.), the defendants owned a substantial and well-established telemarketing lottery business, selling Canadian lottery tickets to American residents. In 1999, the United States Federal Trade Commission (“FTC”) began an investigation of the defendants and obtained an ex parte order in June 2002 permitting the examination of the defendants’ Canadian bank accounts. The FTC obtained a temporary restraining order in the U.S. District Court in respect of a claim filed on September 30, 2002. On October 2, 2002, the plaintiff United States government commenced the current action for damages for fraud and obtained a stand alone Mareva Injunction. Affidavits were then filed by the defendants and responded to by the FTC investigator. The defendants subsequently brought a motion to dissolve the injunction on grounds that the U.S. Government lacked standing and failed to satisfy the test for granting Mareva injunctive relief. The defendants argued that the U.S. government had failed to disclose material facts, failed to make out a ‘strong prima facie case’ of fraud against them, and failed to establish that they were likely to dissipate or remove assets from the Ontario jurisdiction. Justice Gans granted the defendants’ motion and held that the U.S. Government failed to meet the Mareva threshold of making full and frank disclosure of several material facts. The learned judge further held that the U.S. Government failed to disclose that the defendants had substantial connections in their local community and conducted business in the open, thereby negating any inference of dissipation. Gans, J. further concluded that the U.S. Government failed to establish a strong prima facie case of fraudulent telemarketing conduct by the defendants, particularly since the defendants’ conduct, bank records and business activities could have been discovered by the U.S. Government which had access to all records during the relevant period.

The U.S. Government’s appeal to the Ontario Divisional Court was unsuccessful. At the Ontario Court of Appeal, Catzman and Laskin JJ.A. (Borins, J.A. dissenting) held that the motions judge did not intend the order to finally dispose of the issue of standing. In the majority’s view, the motions judge would have dismissed the action instead of making the order, if his intention was to finally dispose of the issue. Accordingly, the motions to quash were granted and the appeal was quashed: United States v. Yemec (2004), 2004 CarswellOnt 141, Borins J.A., Catzman J.A., Laskin J.A. (Ont. C.A.)

Fast forward to 2009

Although today’s decision is lengthy (223 paragraphs), Justice Belobaba’s written reasons are cogent, concise and compelling and merit close reading. Belobaba, J. considered three overlapping motions before the court:

(1) The Ontario defendants asked that the damages undertaking that was given to the Ontario court by the U.S. plaintiffs when the Mareva and Anton Piller orders were granted be enforced immediately and any damages awarded be paid forthwith;

(2) The U.S. plaintiffs moved for partial summary judgment to enforce the U.S. judgment; and

(3) The Ontario defendants moved to stay the entire proceeding on a number of grounds, including abuse of process and standing, and alternatively to strike the pleadings.

In brief, the court on issue 1) held that the 2002 portion of the Ontario action should be stayed; however, the 2005 portion – in essence, the request to enforce the U.S. judgment and the two tracing claims – was ordered to remain in force. With respect to issue 3) although the court dismissed the defendants’ motion for a stay or striking the pleadings, Justice Belobaba did direct that the damages inquiry on the undertaking should be held immediately and, if any damages are awarded, they must be paid promptly and in full by the plaintiffs before any further steps are taken in the Ontario proceeding.

Issue 3) has the most significant impact on conflict of laws jurisprudence. After reviewing  two of the three existing impeachment defences set forth in Beals v. Saldanha ([2003] 3 S.C.R. 416, 2003 SCC 72 (S.C.C.) namely, public policy and natural justice), the court dismissed the U.S. Government’s motion for partial summary judgment to enforce the judgment of the U.S. court. Furthermore, “the defendants’ submission that they were denied a meaningful opportunity to be heard by the actions of the plaintiffs (the so-called “new defence”) raises a genuine issue for trial.” The learned motions judge concludes as follows:

[172] The new defence of ‘loss of meaningful opportunity to be heard’ must be different in scope and content from the natural justice defence. In my view, it must relate not to the process and procedures of the foreign court (that is the natural justice defence) but to some significant unfairness in the way the litigation itself has proceeded or has been conducted.
[173] Here, the defendants submit that the plaintiffs strategically engaged in conduct that effectively denied the defendants a fair opportunity to be heard in the U.S. forum. The defendants say they could not present a full and fair defence in the U.S. because they were invested in setting aside the ex parte orders in Ontario.[80] They point to the evidence of David O’Toole, the lead attorney for the FTC, who agreed under cross-examination that the Ontario injunctions put the Yemec defendants at a disadvantage in defending the U.S. action.
[174] In their affidavits, the defendants attest to the following: by the time Rakesh Amin, a Chicago-based lawyer, was retained to defend the U.S. proceeding, all of the defendants’ assets had been frozen and business records seized. Lacking access to their business documents and computers, it was difficult to find responding material and instruct U.S. counsel. Moreover, the defendants were afraid to enter the United States because no one would give them an assurance that they would not be detained at the border. Within two weeks after having their bank accounts frozen, documents seized, and business premises shut down, the defendants were expected to mount a defence in the U.S. proceeding.
[175] It is true that a few days after the documents and the computers had been seized, the plaintiffs offered to return the 260 boxes to the defendants for their review. However, by this point, their business premises were gone and it was unrealistic for Mr. Yemec or Ms. Bungaro to accept delivery of this massive and disorganized quantity of paper and sort through it within the confines of their front halls or even living rooms. Justice Gans commented on the plaintiffs’ style of litigation:

[H]aving regard to the nature and volume of the documents seized and ultimately filed before Nordheimer J. and me, it is no answer to suggest that the FTC’s counsel offered the Yemec Defendants an opportunity to review the material to see if there was something of import in the mass of material seized that would help their case. That is just not the way the litigation should have been prosecuted … [81]

[176] The defendants say they were forced to agree to the preliminary injunction in November 2002 because they did not have the financial means and access to documents to prepare an oral evidentiary hearing to defend the case on the merits. Mr. Amin, the U.S. counsel, advised the FTC counsel in writing that the defendants did not admit the FTC’s allegations but “have no possible means or opportunity to prepare for a hearing on the merits due to the fact that they do not have access to any of the documents seized nor do they have access to monies to pay for U.S. attorney’s fees.”[82]
[177] The defendants also say they had no choice but to give consent on July 14, 2003, to the FTC’s use of the seized documents because the FTC had requested financial disclosure that could not be provided because the required documents and assets had been seized or frozen.
[178] The defendants also point to the fact that Justice Gans had asked the attorney for the U.S. Department of Justice to delay the U.S. action until the Ontario dissolution motion had been decided. Justice Gans was concerned that parties be provided with “something of a level playing field.”[83] His request was ignored and the FTC continued to pursue the U.S. proceedings against the defendants.
[179] In sum, the defendants and their U.S. counsel, Mr. Amin, have provided detailed affidavits in support of the submission that they did not receive a full and fair opportunity to defend the U.S. proceedings because of the way that the plaintiffs conducted the litigation. Not surprisingly, all of these assertions are disputed by the plaintiffs.

Accordingly, Belobaba, J. held that:

“The defendants should have their day in court to present evidence and legal argument about whether they were denied a meaningful opportunity to be heard because of the plaintiffs’ conduct of the litigation and whether, as a result, the U.S. judgment should be recognized and enforced by this court.”

Blog readers may also be interested in my article: “Enforcing Foreign Summary/Default Judgments: The Damoclean Sword Hanging Over Pro Se Canadian Corporate Defendants? U.S.A. v. Shield Development”, (2007) 7 Can. Int’l Lawyer (No.1), 8-23; reprinted in NATURAL JUSTICE-EXPANDING HORIZONS, R. Satya Narayana (ed.) (Hyderabad, India: Amicus Books-ICFAI University Press, 2009), 192-221, which addresses the audi alteram partem defence in the context of a comparative procedural law analysis.

Antonin I. Pribetic

One Response to “United States v. Yemec: Ontario Court Recognizes "New" Impeachment Defence to Enforcement of Foreign Judgments”

  1. queensplate Says:

    game,set and match coming up.DOJ realizes that there is zero chance of being granted leave to appeal to SCC,so it's time for the "fat lady" to put on her wig and leave her dressing room and head for centre stage for the 4th and final act of this farce

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