Ontario Court of Appeal Affirms Enforceability of Louisiana Bankruptcy Court Judgment

The Court of Appeal for Ontario in Stern Estate v. Solehdin, 2011 ONCA 286 (Ont. C.A.) affirms the conflict of laws doctrine that once a foreign judgment is final and conclusive, the principles of res judicata and issue estoppel operate to preclude a collateral attack on the underlying foreign judgment.

The appeal judgment affirms the lower court judgment of Leitch, J. in Stern et. al. v. Solehdin, 2010 ONSC 1012 (CanLII) which enforced a Louisiana Bankruptcy Court summary judgment made against the appellants on their personal guarantees in support of a loan to a company in Louisiana that subsequently went bankrupt.

The appellants conceded there was a real and substantial connection to Louisiana, since all of the appellants defended and asserted claims and thus attorned to the jurisdiction of the Bankruptcy Court.  However, the appellants argued that the Louisiana Bankruptcy Court lacked subject matter jurisdiction to decide the issue of whether the guarantors were liable on their guarantees and that that issue should have been decided by the Louisiana State court.

Before the motion judge, the appellants relied on  the Federal Court decision in Canadian National Railway Co. v. Canadian Transport Commission, reflex, [1988] 2 F.C. 437 [CNR], which held (at para. 31):

The law is clear that the consent or agreement of the parties cannot confer jurisdiction on a court where none in fact exists. (at para. 41, per Leitch, J.)

Justice Leitch distinguished the CNR case, noting:

[83]      However, despite the able argument of counsel for the Respondents, I am satisfied that the applications should be allowed and these Judgments enforced. I note that the reasoning in CNR is not applicable here. This is not a clear-cut circumstance where the foreign Court had no statutory jurisdiction over the matter, as was the case in CNR. Rather, the argument of the Respondents involves a nuanced interpretation of jurisdiction under the Bankruptcy Code of the United States on which two experts do not agree.

[84]      Furthermore, the Bankruptcy Court itself heard the Motion to Remand and decided that it had jurisdiction over the matter.

[85]      Most significantly, there has been no challenge to that exercise of jurisdiction under the laws of Louisiana and I am satisfied that the Judgments are not open to collateral attack for lack of subject matter jurisdiction. Mr. Williamson in his first affidavit opined otherwise on the basis that the Respondents had no statutory right to appeal the Order Denying Remand and thus the jurisdictional issue was never fully litigated. This finding was the basis for his conclusion that the Judgments would be subject to collateral attack for lack of subject matter jurisdiction if they were sought to be executed in Louisiana. However, he resiled from that opinion in his supplemental affidavit and agreed with Mr. Phillip’s opinion that interlocutory appeal of the Order Denying Remand would have been available to the Respondents and such availability “would make it more difficult to invalidate the judgment in a United States court”. (at para.

The Ontario appeal agreed:

[3]              Having regard to the fact that the appellants participated in the Louisiana proceedings, specifically raised the issue of the Louisiana Bankruptcy Court’s subject matter jurisdiction, and failed to appeal the Louisiana Bankruptcy Court’s determination that it had subject matter jurisdiction, we are of the opinion that it was not open to the appellants to re-litigate the issue of subject matter jurisdiction in Ontario.(at para. 3)

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