“Feeling Minnesota (But Looking Ontario)”

feelingminnesota

The recent Ontario decision in Amtim Capital Inc. v. Appliance Recycling Centers of America2013 ONSC 4867 (Ont. S.C.J.) [“Amtim Capital”] highlights the limits of judicial comity in international litigation and to what extent a default judgment in a foreign court will operate as res judicata, issue estoppel or abuse of process.  It also provides insight into how most Canadian judges take a dim view of forum shopping.

In Amtim Capital, the defendant, Appliance Recycling Centers of America (“ARCA”), is a Minnesota corporation carrying on business in recycling services. In 2007, ARCA, through its Canadian subsidiary, ARCA Canada Inc., (“ARCA Canada”),began recycling major appliances in Ontario under a contract between ARCA and the Ontario Power Authority.  ARCA entered into two collateral agreements dated September 24th, 2007 with the plaintiff Amtim Capital Inc. (“Amtim”) for certain services set out in the agreements to ARCA Canada. Amtim is an Ontario corporation operating throughout Canada.  The contracts at issue expressly stated that they involved Amtim’s provision of “services only within the country of Canada”.  Amtim has never done any work in Minnesota or any other U.S. state.

Amtim was to receive the greater of 4 percent of gross sales or 25 percent of net profit of the operations ( partly based upon ARCA’s total cost of its Canadian operations calculated consistent with the United States Generally Accepted Account Principles (“GAAP”).  As of March 18th, 2013, Amtim has been paid $2,134,710.35.

Based on the terms of the agreements and GAAP, ARCA allocated various expenses:  administrative expenses, SEC and NASDAQ compliance expenses and accounting expenses  (i.e.“Corporate Overhead”) to each of its separate divisions and subsidiaries to, inter alia, maintain and record the profitability of each of its divisions and subsidiaries.  ARCA and Amtim disagreed on how much, if anything, ARCA owed to Amtim under the agreements based upon a dispute over the proper determination and allocation of corporate overhead from ARCA to ARCA Canada. (i.e., revenues, net profit, total cost  and collection fees for units collected in respect of Canadian operations).

The agreements expressly provided that they were governed and to be “enforced” by Ontario law.

Subsequent efforts at mediation and attempts at arbitration failed, leading ARCA to sue Amtim  in Minnesota seeking declaratory relief from the court as to the proper method for the determination and allocation of ARCA’s corporate overhead to ARCA Canada [the “U.S. Action”].  Amtim did not attorn; rather, it commenced an action in Ontario relating to the issue of amounts owing pursuant to the agreements [the “Ontario action”].  The claim in Ontario Action sought positive coercive payment out of the contracts in the sum of 1.6 million dollars.

In April, 2011 Amtim brought a motion to dismiss the U.S. Action on the grounds that the United States District Court lacked personal jurisdiction over Amtim , or, alternatively, the United States was forum non conveniens.  Turnabout’s fair play: By notice of motion dated May 30, 2011, ARCA moved for an order staying the Ontario Action and for an order setting aside the service of the statement of claim, all on the basis of forum non conveniens.

The United States District Court denied Amtim’s motion, finding that it had personal jurisdiction over Amtim and that the doctrine of forum non conveniens did not preclude the adjudication of ARCA’s claims in Minnesota.

ARCA obtained default judgment in the U.S. Action after Amtim failed to defend ARCA’s complaint and did not appeal.

Thereafter, ARCA’s motion to stay the action on the basis of forum non conveniens was argued before Gordon J. of the Ontario Superior Court who dismissed ARCA’s motion by order dated February 21, 2012 despite the Minnesota default judgment. The Ontario Court of Appeal dismissed ARCA’s appeal..  In his reasons, Goudge J.A. wrote:

Moreover, to give the Minnesota default judgment the result contended for by the appellant is in effect to conclude that it constitutes res judicata for the entire Ontario Action.  As the Ontario Action proceeds, the appellant may be able to use the Minnesota judgment to stay or defend the Ontario action on the basis of res judicata or a related legal doctrine. However it must do so directly and explicitly…

Justice Goudge’s  reasoning in Amtim Capital Inc. v. Appliance Recycling Centers of America, 2012 ONCA 664 (CanLII), (Ont. C.A.) are apposite:

[14]      The appellant’s second argument is that the granting of default judgment in the Minnesota action trumps all other factors relevant to this issue and requires that the Ontario action be stayed.

[15]      The appellant acknowledges that prior to default judgment, the existence of the Minnesota action was but one factor to be considered in the forum non conveniens balance. The motion judge did just that, and found that even with the existence of the default judgment, this factor was not conclusive, although slightly favouring Minnesota. He concluded that, weighing all the factors together, it was not enough to displace the effect of the other factors favouring Ontario. Indeed, the appellant acknowledges that had there been no default judgment, he would not have raised this issue on appeal.

[16]      I would reject the appellant’s second argument. The assessment of the most convenient forum requires consideration of all the relevant factors. It is an exercise of judicial discretion in light of all the circumstances. In my view, it misconceives the court’s task to say that once default judgment is granted the other relevant considerations become irrelevant. The granting of default judgment does not instantly transform Ontario from the more convenient forum to its antithesis. The default judgment is simply a step in the parallel proceedings in Minnesota which is a factor to be weighed in the balance with the other relevant factors.

[17]      To find that the Minnesota default judgment necessitates the conclusion that Ontario is not the more convenient forum, is simply to reduce the determination of the forum conveniens issue into a race to the courthouse and then to judgment. To do so would impair the flexibility of the full forum conveniens analysis that must be conducted. See Teck Cominco Metals Ltd. Lloyd’s Underwriters,2009 SCC 11 (CanLII), [2009] 1 S.C.R. 321.

 According to Lofchick J.:

[19]      The motion materials filed by ARCA in the Minnesota Action in support of ARCA’s application for default judgment appear to be grounded upon the fact that Amtim did not attorn to the jurisdiction of the Minnesota Court and did not file an answer to the ARCA complaint.  The materials made no mention of the pending Ontario proceedings.  The materials did not set forth before the court any evidence or data indicating the formula, methods and manner in which ARCA calculated the allocation of its corporate overhead to the Canadian operations, nor did they indicate the formula, methods, manner or financial calculations by which Amtim’s compensation was calculated.  It is questionable therefore whether the Minnesota Court considered the merits of the compensation dispute.

After citing the key principles underlying the doctrine of res judicata barring relitigation of the issues,  set out by the Supreme Court of Canada in Danyluk v. Ainsworth Technologies Inc., [2001] 2 S.C.R. 460 (S.C.C.) the motion judge then  considers whether the Minnesota judgment  is considered final for the purposes of res judicata, issue estoppel and abuse of process in the Ontario action.  Ultimately, the motion judge sided with Amtim’s argument that depriving it from a hearing on the merits where the Ontario court has subject-matter jurisdiction while relying on a foreign default declaratory judgment would not meet the “ends of justice”.

 While Beals v. Saldanha 2003 SCC 72 (CanLII), 2003 SCC 72 (CanLII) established that the “real and substantial connection” test for assuming jurisdiction applies equally to enforcement of foreign judgments, the reality is that Canadian courts will scrutinize attempts at forum shopping, particularly in respect of declaratory judgments:

 [32]      As I stated above, the motion materials filed by ARCA in the Minnesota Action in support of ARCA’s application for default judgment were grounded solely upon the fact that Amtim did not attorn to the jurisdiction of the Minnesota courts and did not file an answer to the ARCA complaint.  The materials made no mention of the pending Ontario proceedings.  Similarly the materials do not set forth before the court any evidence or data indicating the formula, methods and manner in which ARCA calculated the allocation of its corporate overhead to the Canadian operations, nor do they indicate the formula methods, manner or financial calculations by which Amtim’s compensation was calculated.  No court has yet considered the merits of this compensation dispute.

[33]      In the case of Wolf v. Pickar, [2011] O.J. No. 2035 the motions judge and the Court of Appeal expressly and impliedly recognized the impropriety of allowing the natural defendant to employ declaratory judgment in a race to res judicata as a preemptive strike against a natural plaintiff.

[34]      A court may properly consider the role that each of the parties played in each of the proceedings in assessing whether the parties should be considered to be the same parties for the purpose of invoking res judicata or issue estoppel.

Wolf v. Wyatt, [2010] O.J. No. 2434

1117322 Ontario Inc. v. Telus Corporation, 2010 ONCA 262 (CanLII), 2010 ONCA 262 (CanLII

Without the benefit of the pleadings in either the U.S. Action or Ontario Action, it is difficult to discern whether they are indeed parallel proceedings. That said, Lofchick J. did not think so:

[35]      In this action Amtim is not subjecting ARCA to a proceeding for the same cause as the Minnesota proceedings.  Here Amtim is plaintiff seeking damages on the basis of a calculation of monies owing whereas the Minnesota proceedings were instigated by ARCA and were for a declaration that was granted without litigating the specific issues outstanding between the parties.

[36]      I find that the “real and substantial connection” in this case is with Ontario as Amtim’s services were provided to ARCA Canada in Ontario, ARCA Canada being a wholly owned subsidiary of ARCA set up for the purposes of carrying on business in Ontario.  Amtim has never had any genuine contact with the State of Minnesota, has never conducted any form of business in that state.  All the of services where compensation is sought were provided in Ontario and elsewhere in Canada and the agreements between the parties especially provide that they are not only to be governed by Ontario law but are also to be “enforced” by Ontario law.  I find that ARCA’s Minnesota judgment premised upon the Minnesota long arm statute and the establishment of “minimum contacts” with that state is insufficient to ground jurisdiction according to Canadian conflict of laws rules and that ARCA’s negative declaratory default judgment has no enforcement capability except as a defensive response to a positive claim by Amtim.

[37]      As the issues were not, in my view, adjudicated on the merits in the Minnesota Action, I find that the doctrine of issue estoppel or res judicata do not apply in this case.  If I am wrong on this analysis, I nevertheless have a limited discretion to refuse to apply the equitable doctrine of issue estoppel or res judicataand I am of the view that the exercise of such discretion in this case would advance the ends of justice.  Giving the Minnesota declaratory judgment effect in the circumstances would give the appearance of sanctioning forum shopping, something the courts ought not to do.

[38]      I agree with the plaintiff’s submission that a dismissal of this action on the basis of res judicata or issue estoppel would be inconsistent with the ends of justice and deprive an Ontario company of a hearing on the merits in this province of a claim for compensation that is integrally tied to Ontario.  The defendant’s motion is therefore dismissed.

Analysis

Forum shopping is a corollary of parallel proceedings, although the late Justice Sopinka did not think it was much of a problem in Amchem Products Incorporated v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897 (SCC), stating;

A court which qualified as the appropriate forum for the action would not find it necessary to enjoin similar proceedings in a foreign jurisdiction because it could count on the foreign court’s staying those proceedings.  In some cases, both jurisdictions would refuse to decline jurisdiction as, for example, where there is no one forum that is clearly more appropriate than another.  The consequences would not be disastrous.  If the parties chose to litigate in both places rather than settle on one jurisdiction, there would be parallel proceedings, but since it is unlikely that they could be tried concurrently, the judgment of the first court to resolve the matter would no doubt be accepted as binding by the other jurisdiction in most cases.

 While the above scenario is one we should strive to attain, it has not yet been achieved.  Courts of other jurisdictions do occasionally accept jurisdiction over cases that do not satisfy the basic requirements of the forum non conveniens test.  Comity is not universally respected.  In some cases a serious injustice will be occasioned as a result of the failure of a foreign court to decline jurisdiction.  It is only in such circumstances that a court should entertain an application for an anti-suit injunction.  This then indicates the general tenor of the principles that underlie the granting of this form of relief.  In order to arrive at more specific criteria, it is necessary to consider when a foreign court has departed from our own test of forum non conveniens to such an extent as to justify our courts in refusing to respect the assumption of jurisdiction by the foreign court and in what circumstances such assumption amounts to a serious injustice.  The former requires an examination of the current state of the law relating to the stay of proceedings on the ground of forum non conveniens, while the latter, the law with respect to injunctions and specifically anti-suit injunctions.

The Amtim Capital decision does not address any of the impeachment defences to the enforcement of foreign judgments: fraud, natural justice, or public policy. The reason may be timing.On the motion for a stay on forum non conveniens grounds  (Amtim Capital v. Appliance Recycling, 2012 ONSC 1214 (CanLII) (Ont. S.C.J.), Gordon J. noted:

[19]           The statement of claim was issued several weeks after the commencement of the Minnesota action.  AMTIM seeks payment of $1,600,000, being the balance of compensation it says is owing under the agreements.

[20]           Upon receipt of the statement of claim, ARCA served the within motion, dated May 30, 2011.  The motion was initially adjourned but not rescheduled, for some unexplained reason, until January 2012.

In my case comment on United States of America v. Shield Development Co., 2004 CanLII 66345 (ON SC) entitled: “Enforcing Foreign Summary/Default Judgments: The Damoclean Sword Hanging Over Pro Se Canadian Corporate Defendants? The United States of America v. Shield Development Co.”  (2007) 7:1 Canadian International Lawyer, 8-23; (SSRN link), I proposed the following:

Therefore, the defence of natural justice in the context of foreign default judgment enforcement involving pro se corporate defendants should include the following analytical inquiry:

1. Was default judgment granted against a corporate defendant who previously attorned or submitted to the foreign court’s jurisdiction?

2. Is the foreign judgment final or res judicata in the foreign jurisdiction (i.e. all rights of appeal and time limitations to set aside the foreign judgment have been exhausted)?

3. If so, was default judgment granted against the corporate defendant in circumstances involving defective service under the foreign court’s procedure?

4. If not, was the defendant represented by counsel at the time default judgment was granted?

5. If the corporate defendant was unrepresented at any stage of the foreign proceedings, did the foreign court’s procedural system afford the corporate defendant a right of appearance and notice similar to those available in the Canadian domestic enforcing court?

6. Was the foreign judgment obtained based upon a foreign rule of procedure intended to be used as a technical weapon to defeat the rights of pro se litigants to have their cases fairly judged on the merits?

It is arguable that once the default judgment was granted by the U.S. court and no appeal was pursued, the Minnesota judgment became final and conclusive. At that point, the Ontario court was obliged to decide whether the Minnesota court properly asserted both personal and subject-matter jurisdiction to establish a “real and substantial connection”. If so, then the Ontario action would necessarily engage the impeachment defences, if any, available to Amtim. Of course, since the U.S. Action and declaratory judgment was held not to operate as res judicata or issue estoppel in the Ontario action, its effect, if any, is negligible on the merits of the Ontario action.

Tags: , , , , , , , ,

One Response to ““Feeling Minnesota (But Looking Ontario)””

  1. Ted Folkman Says:

    Back so soon!

    Good post, Antonin–I’m going to pick up on this case.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: