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Courtesy of esteemed fellow blogger and IJA Brigade member Antonin Pribetić, who clearly has found his muse again, the case of the day is Amtim Capital, Inc. v. Appliance Recycling Centers of America, 2013 ONSC 4867. Appliance Recycling, or ARCA, was a Minnesota corporation. It had a Canadian subsidiary, ARCA Canada, Inc., which had contract with the Ontario Power Authority to recycle major appliances in Ontario. ARCA, in turn, had two contracts with Amtim Capital to perform certain services that ARCA was obligated to perform under its contract with the OPA. Amtim, an Ontario corporation, was to be paid the greater of 4% of gross sales or 25% of net profits; net profits were to be calculated using US GAAP. The ARCA/Amtim contract had an Ontario choice of law provision.
Amtim and ARCA got into a dispute about accounting, Amtim claiming that it hadn’t been paid all it was owed. ARCA won the race to the courthouse and sued Amtim for a declaratory judgment in the District Court of Hennepin County, Minnesota, seeking a declaration of the parties’ respective rights under the contract. Amtim removed the case to the US District Court for the District of Minnesota and then moved for dismissal for lack of personal jurisdiction or, in the alternative, on forum non conveniens grounds. Chief Judge Davis denied the motion. Amtim then defaulted, and the court entered a default judgment.1
In the meanwhile—just days after ARCA had filed the Minnesota action—Amtim sued in Ontario seeking $1.6 million in damages. While Amtim’s motion to dismiss the Minnesota case was pending, ARCA moved to stay the Ontario case on forum non conveniens grounds. Interestingly, while both parties brought motions to stay or dismiss, neither party apparently sought an anti-suit injunction, which is surprising.
After the Minnesota default judgment entered, the Ontario Superior Court denied ARCA’s motion to stay, and on appeal the Ontario Court of Appeals affirmed, reasoning:
[T]o 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 …
Despite the Court of Appeals’s hint, ARCA returned to the Ontario trial court and moved to dismiss on the grounds that the Minnesota judgment was res judicata.
The judge denied the motion. He found that Amtim lacked the “real and substantial connection” with Minnesota that would be required “to ground jurisdiction according to Canadian conflict of laws rules.” But that didn’t end the story, because the judge recognized that the US judgment might still have preclusive effect “as a defensive response to a positive claim by Amtim”—which is, of course, precisely the purpose ARCA had in mind. The judge held, without much analysis, that the Minnesota judgment was not res judicata because the merits had not been adjudicated:
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.
I will leave this to others as an issue of Canadian law, but it seems difficult to believe that it is right, since the merits are never adjudicated on a default judgment. Is it really the law of Ontario that a foreign default judgment can’t be res judicata?
In any case, the judge decided that even if the Minnesota judgment was res judicata, he would exercise his discretion not to recognize it:
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.
Again, I will leave the Canadian law to others, but is this sensible? I question the wisdom of the decision given that Amtim appeared in the Minnesota case and sought dismissal, and that Amtim did not ask the Ontario court to enjoin ARCA from proceeding in Minnesota.
- This raises an interesting procedural point: what’s the best thing to do if you want to seek dismissal for lack of personal jurisdiction (or insufficient service of process, or another similar plea in abatement), if you have no intention of defending the case on the merits? Do you fight the point? Or do you ignore the proceedings? This is a complicated question, and the answer will vary. But consider: if you make a motion to dismiss and lose, and then take a default judgment, you will not be able to appeal on your threshold issue. In order to preserve your right to appeal, you will have to litigate the merits of the case to a final judgment. By the same token, you will have no right to bring a motion to set aside the default judgment under FRCP 60(b)(4) on the grounds that the judgment is void, because the court has jurisdiction to decide its own jurisdiction, and a mere mistake doesn’t void the judgment. On the other hand, if you do nothing, then you preserve the possibility of bringing a motion under FRCP 60(b)(4), because the court will not have made a decision on the jurisdictional question before entry of judgment. So at least in some cases, if your plan is not to defend the case on the merits no matter what, it may be best to take the default. Of course, whether it’s a good idea to say that you’re not going to defend the case on the merits is another question entirely!
This gets even more complicated in the service of process context. Suppose you’re a foreign defendant and you have a pretty good argument that the plaintiff cannot accomplish service of process on you (e.g., you live in a Hague Convention country that does not permit service by mail, and the central authority has refused to execute a request for service under Article 13—there are other possibilities, too, of course). Should you wait for a default and then have your lawyer bring a motion to set aside the judgment under FRCP 60(b)(4)? Danger! When your lawyer enters his appearance, he becomes a big target for a motion for leave to make service by alternate means under FRCP 4(f)(3)! So I’m just saying—it’s complicated.