Monday, 1 June 2015

“Judgment Arbitrage” – Can You Enforce a Foreign Judgment in a State that does not Recognize Foreign Judgments by First Obtaining a Recognition Judgment in Another State?

Judgment arbitrage refers to the practice of getting a foreign judgment that would normally be unenforceable in a given jurisdiction (say a particular Canadian province or U.S. state) enforced there by first obtaining recognition of that judgment in another, more liberal province or U.S. state.  The idea is that the recognition judgment, because it is not a foreign judgment, might get around the first state’s restrictions on recognition of foreign judgments.  Some would say this is just a form of forum shopping, i.e. litigating in a particular jurisdiction for its juridical advantages and not because of any connection between the case and that jurisdiction.   Might there be circumstances in which the recognition judgment could properly be enforced?  

Consider the case of the Alberta Securities Commission (“ASC”) and the judgment it obtained in Alberta against one Lawrence Ryckman for $500,000 in costs following an ASC proceeding in which Ryckman had been found to have misled investors.    After Ryckman moved to Arizona the ASC sued in Arizona and obtained a judgment there recognizing the Albertan judgment.    The ASC then sought to enforce the Arizona judgment in Delaware.  (It is not clear whether Ryckman had subsequently moved to Delaware or whether the ASC discovered assets of Ryckman in Delaware.) 

Had the ASC attempted to enforce the Albertan judgment directly in Delaware, the ASC would have failed:  that state does not recognize foreign judgments for fines or penalties.  As well, the claim would have been statute-barred in Delaware.     Ryckman therefore argued that the ASC was trying to gain enforcement through the back door, i.e. by trying to circumvent the Uniform Foreign Country Money Judgments Recognition Act (“UFCMJRA”), which bars enforcement of foreign judgments for fines or penalties.    That statute, which is a relatively recent updating of the Uniform Foreign Money Judgment Recognition Act and which has been enacted in a number of states, shifts the onus to the defendant opposing recognition, thus liberalizing somewhat the enforcement of foreign money judgments in those U.S. states that enacted the UFCMJRA.  

But would the Delaware court allow the ASC to enforce “through the back door”?  The Delaware court observed that Ryckman voluntarily moved to Arizona.  Thus it was Ryckman who chose that forum, not the ASC.  The court concluded that there is no evidence that the ASC engaged in any improper forum shopping.   Leave to enforce was granted.   

This is a reasonable outcome.  There is no indication that the ASC’s decision to sue in Arizona was driven by anything other than the fact Ryckman lived there.  There is no indication that the ASC somehow knew at the time it sued in Arizona that it would need to be able to enforce in Delaware (such that suing in Arizona was chosen as a means by which the ASC could later enforce in Delaware).  If following a judgment debtor as he moves around, perhaps in order to avoid a judgment, constitutes forum shopping then as blogger Ted Folkman of Letters Blogatory says, the cure is worse than the disease!

Amongst Canadian provinces the law regarding enforcement of foreign judgments is fairly uniform, but there are differences that could be significant in some cases.  For example, common law provinces will not enforce foreign penal judgments, whereas the Quebec Civil Code does not mention such judgments in its Article 3155 list of exceptions to the default rule that foreign judgments are enforceable.  There may also be differences between common law provinces that have enacted the Court Jurisdiction and Proceedings Transfer Act, which among other things codifies the grounds for territorial competence, and those provinces that have not. 

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