Case of the Day: Alberta Securities Commission v. Ryckman
Posted on May 26, 2015
The case of the day is Alberta Securities Commission v. Ryckman (Del. Super. Ct. 2015). In 1996, the Alberta Securities Commission, following a hearing, found that Lawrence G. Ryckman, the chairman and director of Westgroup, had violated Alberta securities laws by participating in a “complex scheme that created a false and misleading appearance of trading designed to deceive investors to trade at artificial prices.” The administrative decision imposed nearly $500,000 in costs. The Commission obtained a judgment in Canada against Ryckman on the basis of the administrative decision.
Ryckman moved from Canada to Arizona in 1997. The Commission obtained an Arizona judgment against Ryckman in an action in an Arizona Superior Court, which was affirmed on appeal. It then sought to enforce the Arizona judgment in Delaware under the Uniform Enforcement of Foreign Judgments Act, the law in force in most states under which states grant full faith and credit to sister-state judgments. It was undisputed that the Commission would not have been able to obtain recognition of the Alberta judgment directly in Delaware, for two reasons. First, the statute of limitations under Delaware law had expired; and second, Delaware law (the UFCMJRA) does not provide for recognition and enforcement of foreign money judgments to the extent the judgment is for a fine or other penalty.
Ryckman is—or seems—a very good example of what Greg Shill calls “judgment arbitrage”: a foreign judgment creditor brings a recognition action in State A, which has liberal recognition laws, and then leverages the full faith and credit clause and the UEFJA to obtain recognition in State B, a state where the judgment creditor could not have obtained recognition in the first instance. Greg was first past the post with a piece on the new case, which restates his general thesis on judgment arbitrage and argues, against some earlier critics, that the new case shows that judgment arbitrage actually happens, which was not really clear before.
I think it’s possible to push back on this a little, because the Commission sued Ryckman in the state of his domicile. If I have a choice of places to sue a defendant and I choose to sue him in his home forum, it’s hard, I think, to accuse me of forum shopping let alone judgment arbitrage. The Delaware judge picked up on this:
Ryckman argues the ASC is attempting to “back door” the Canadian Judgment into Delaware by unlawfully circumventing the UFCMJRA. However, the facts of this case compel a contrary conclusion. Ryckman voluntarily moved his residence from Canada to Arizona. Thus, Arizona was a forum chosen by Ryckman—not the ASC. Therefore, there is no evidence that the ASC engaged in any improper forum-shopping.
It’s not really clear why the ASC sought to enforce the judgment in Delaware. Maybe Ryckman later moved there? Maybe the ASC discovered assets he had there that it hadn’t known about before? In short, I don’t think we know enough to say that the ASC did anything other than what an unsophisticated judgment creditor, not thinking of judgment arbitrage, would do. Greg, by the way, finds this unpersuasive. He writes:
That the Alberta Securities Commission probably did not diabolically plot its litigation strategy in a smoke-filled room but instead simply followed the asset trail of a nonpaying debtor is irrelevant to the holding.
I am not sure this is so—I think the Delaware judge’s dicta suggests he might have thought evidence of real forum shopping relevant. But we’ll have to wait for the next case to know if that is so. In any case, I think that if we make innocent judgment creditors who are just “following the asset trail of a nonpaying debtor” bring new recognition actions everywhere the trail takes them, the cure is worse than the disease!
Greg and I have already exchanged thoughts on this issue. Readers interested in my overall view on judgment arbitrage (spoiler: I agree with the basic approach of the Delaware court; I want to waive the flag for full faith and credit, and if there is a problem to be solved, I prefer the simpler solution, which is federalization of the law of recognition of foreign judgments) can find my comments and Greg’s comments in this post from April 2014. Opinio Juris also convened an online symposium on the issue. And of course Greg’s paper is the urtext.