United States v. Yemec: Ontario Court of Appeal rejects new foreign judgment impeachment defence

In a decision released today, the Court of Appeal for Ontario in United States of America v. Yemec, 2010 ONCA 414 has closed the door on the “new” impeachment defence of a “denial of a meaningful opportunity to be heard” in the recognition and enforcement of foreign judgments. (See my backgrounder here).
Writing for the unanimous Court, Justice MacPherson (Moldaver and Watt, JJ.A. concurring) considered two issues:
1. Whether an Illinois court order granting $19 million in damages and a permanent injunction against the defendants was enforceable in Canada? and 
2. Whether an Ontario court order requiring the U.S. to respond to damages undertakings given as a condition to the granting of a Mareva injunction and an Anton Piller order should be upheld?
MacPherson, J.A. rejected the notion that a fourth or “new” defence of a “meaningful opportunity to be heard” should be added to the three foreign judgment impeachment defences in Beals: fraud, natural justice and public policy. The Court of Appeal agreed with Justice Molloy of the Divisional Court that a defence “of a meaningful opportunity to be heard is indistinguishable from the natural justice defence.” (at para. 27); a submission also previously rejected by Lang J.A. in King v. Drabinsky, (2008) 91 O.R. (3d) 616,  who at para. 41 held:
“The appellants argue that a fourth category of defence should be added to the categories accepted in Beals on the basis of a denial of a meaningful opportunity to defend.  In my view, as aptly identified by the application judge, the considerations raised by the appellants under the proposed new category are the same considerations as under the rubric of the natural justice defence.  I would not give effect to the appellants’ arguments on this issue.”
Moreover, the defendants were”damned if you don’t, damned if you do”. If they did not defend, then default judgment would follow. Instead,

[30] The defendants retained Chicago lawyer Rakesh Amin, and the U.S. points to evidence that the defendants paid him at least $120,000 in legal fees to appear on their behalf in the U.S. proceedings. The U.S. and Ontario orders permitted the defendants to seek access to frozen assets to pay legal fees. Through their lawyer, the defendants filed a defence, engaged in discovery, brought motions, requested and obtained extensions, and contested an FTC summary judgment motion. They also filed and argued an unsuccessful appeal de novo.

 I’m not persuaded that the amount of legal fees paid should factor into the Court’s legal analysis.  After all, the defendants were facing serious U.S. federal criminal charges arising from an alleged telemarketing lottery scheme. In any event, Justice MacPherson provides a laundry list of active participation by the defendants, such that they “had a full, fair and “meaningful” opportunity to defend the U.S. proceeding before the United States District Court and thereafter in an appeal de novo heard by the United States Court of Appeals for the Seventh Circuit.(at para. 30-34). As MacPherson, J.A.concludes,

[39]         In summary on this point, on the basis of the U.S. District Court record, including the comprehensive reasons for judgment of Judge St. Eve, there is nothing to suggest any unfairness to the defendants in the U.S. summary judgment proceeding.  The defendants had a meaningful opportunity to be heard. 

[40]         Fifth, and particularly crucial in my view, in their appeal to the United States Court of Appeals for the Seventh Circuit, the defendants made no natural justice or denial of a meaningful opportunity to be heard argument.  The appeal related almost entirely to the defendants’ submission that Judge St. Eve erred by holding Yemec and Rapp liable for the various corporations’ allegedly deceptive practices: (2005), 415 F.3d 758. 

[41]         For these reasons, I conclude that there is no “new” defence relating to “a meaningful opportunity to be heard”.  Such a defence is extremely circumscribed by a fair reading of Beals and King v. Drabinsky. In any event, even if there were such a defence, the defendants have not established it in this case.  The U.S. court proceedings, trial and appeal, were fair throughout.  The defendants received, and exercised, a meaningful opportunity to be heard.

The Court of Appeal similarly rejected the defendants’ argument (not raised previously ) on the scope of the ban on telemarketing as well as other injunctive relief:

IT IS THEREFORE ORDERED THAT Defendants George Yemec, Anita Rapp, and the Canadian Corporate Defendants, are hereby permanently restrained and enjoined from engaging in, participating in, or assisting in the Telemarketing, in any manner, of any product or service to any person in the U.S.
Applying the test for foreign non-monetary injunctive orders in Pro Swing Inc. v. Elta Golf Inc., [2006] 2. S.C.R. 612, MacPherson J.A. held that:
“[47]         The terms of the injunction are simple, clear and specific; it would be obvious to the defendants what they cannot do in the United States. 
[48]         The order could have been narrower, restraining only telemarketing activities relating to the sale of foreign lottery tickets.  However, given Judge St. Eve’s ultimate conclusion that the defendants’ activities constituted deceptive practices in violation of the Federal Trade Commission Act, 15 U.S.C. §45(a) and the Telemarketing Sales Rule, 16 C.F.R. Part 310, I cannot say that a complete prohibition of telemarketing aimed at people in the United States is unfair or unreasonable.  Moreover, Judge St. Eve’s order specifically directed that the District Court would retain jurisdiction to enable any party to seek modifications to the order. 
[49]         Enforcement of the U.S. court order does not place an undue burden on the Canadian justice system.  
[50]         I can see no unforeseen obligations to which the defendants will be exposed. Compliance with U.S. law is not, of course, an unforeseen obligation.
[51]         The U.S. court order does affect some third parties (it requires the defendants to provide information about their customers).  However, this information is needed in light of the $19 million damages award; it is unlikely that consumers will object on privacy grounds to the release of contact information that might assist the U.S. government to distribute that amount.
[52]         Finally, enforcement of the U.S. court order is consistent with the types of orders that would be allowed for domestic litigants.”
Finally, the Court of Appeal agreed with the motion judge that in lieu of “special circumstances”, this was “not an appropriate case to depart from the strong presumption that a party who gives an undertaking to obtain an interlocutory injunction should be held to the undertaking”. The undertaking for damages is codified under Rule 40.03 of the Rules of Civil Procedure which provides:
40.03  On a motion for an interlocutory injunction or mandatory order, the moving party shall, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party. R.R.O. 1990, Reg. 194, r. 40.03.
 While Justice MacPherson disagreed with the motion judge’s view that the Yemec organization had not engaged in conduct “that was clearly in breach of Canadian criminal law”. this did not absolve the U.S. from facing a damages inquiry forthwith. Hence, the enforcement of the $19 million damages component of the U.S. court order was stayed until the damages inquiry in Ontario is concluded.

3 Responses to “United States v. Yemec: Ontario Court of Appeal rejects new foreign judgment impeachment defence”

  1. Sonnettingold Says:

    Since a defense is raised by the defendant in a direct attempt to avoid what would otherwise result in liability, the defendant typically holds the burden of proof. For example, if a defendant in an assault and battery case attempts to claim provocation, the victim of said assault and battery would not have to prove that he did not provoke the plaintiff; the defendant would have to prove that the plaintiff did.

  2. Sonnett Ingold Says:

    For purposes of bringing any action under this subsection, nothing in this subsection or in any other provision of Federal law shall prevent the chief law enforcement officer of a State, or an official or agency designated by a State,

  3. Guest Post: Comments on the Lago Agrio Plaintiffs Enforcement Action in Canada | Letters Blogatory Says:

    […] In United States of America v. Yemec, 2010 ONCA 414 (Ont. C.A.), the Court of Appeal for Ontario closed the door on the “new” impeachment defence of a “denial of a meaningful opportunity to be heard” in the recognition and enforcement of foreign judgments and held it was indistinguishable from the impeachment defence of denial of natural justice (See my backgrounder here). […]

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