Thursday, 30 November 2017

California Court Bars Enforcement of Cdn Injunction Against Google

     This month, the United States District Court in San Jose, California granted Google a preliminary injunction preventing enforcement of the order issued by the British Columbia Supreme Court that compels Google to remove Datalink’s websites from its search results not just in Canada but worldwide.    Equustek Solutions had sought the order after discovering Translink had stolen its trade secrets and was misrepresenting a Equustek product as a Translink product.  The B.C. order was affirmed by the B.C. Court of Appeal and by the Supreme Court of Canada (Google v. Equustek Solutions 2017 SCC 34)  – see my post from this summer and earlier.   Equustek did not defend Google’s motion.  However, the judgment itself and the reasons of the Supreme Court of Canada made clear to the California court the underlying facts and the rationale for the injunction.  

     The test the U.S. court applied is similar to the Canadian common law test for an interlocutory injunction, and consists of four requirements:   a.) a strong case on the merits, b.) a likelihood of irreparable harm, c.) the balance of equities weigh in favour of the injunction, and d.) the injunction would be in the public interest. 

     As for the merits, Google relied on the Communications Decency Act (“CDA”), which immunizes providers of interactive computer services (such as Google) from liability arising from content created by third parties.  Google is not to be treated as the publisher or speaker; Translink is the publisher while Google is merely an intermediary. 

     As for irreparable harm, it is hard to see how Google could meet that test.  After all, in the Canadian proceedings Google admitted it already has staff who delist certain offensive material from search results, and Google admitted that to delist Translink sites would not be burdensome.   Nor was there any indication that delisting Translink sites (or other sites containing intentionally misleading information) would affect Google’s revenues or would harm Google’s reputation.  Yet the U.S. court disposed of irreparable harm in a single sentence: “Google is harmed because the Canadian order restricts activity that section 230 [of the CDA] protects” (p. 5 lines 13-14). 

     The court summarily disposed also of the balancing of the equities.   It did not even address the fact that the content that was delisted misrepresents Equustek’s product as its own, which misrepresentation harms not just Equustek but also potential buyers, and possibly also the general public,  especially if the products sold by Translink have latent defects.  The Court said only that “the balance of equities favours Google because the injunction would deprive it of the benefit of federal law” (p. 5, lines 14-15).  Far from balancing equities, the court did not even consider the potential benefits of the injunction, for anyone.     

     The test’s last requirement is that the injunction be in the public interest.    The court answered that the order “threatens free speech on the global internet” (p. 6, lines 9 – 10).    “[With the passage of the CDA,] Congress wanted to encourage the unfettered and unregulated development of free speech on the Internet”, and “free speech … would be severely restricted if websites were to face tort liability for hosting user-generated content”.  (p.5 lines 19-24 and p. 6 lines 1 – 10).

     Nowhere does the ruling address the principle that in general, in foreign judgment enforcement cases,  U.S. courts are not to review the merits of the underlying judgment, or the principle of comity (Hilton v Guyot 159 US 113 (1895).  Arguably the court did not need to address those matters, insofar as California law does not provide for the enforcement of non-monetary judgments;  their courts’  power to enforce foreign judgment applies only to monetary judgments (Cal. Code of Civil Proc. S. 1715 (a)).

     By the same token, nor did the court need to base its ruling on the ground the judgment conflicts with the CDA and its supposed purpose of protecting free speech.  The California court could have rendered a narrower ruling, granting the injunction barring enforcement merely on the ground that the judgment is non-monetary. 

     The fact the court chose instead to base its ruling on inconsistency with the CDA suggests that U.S. courts may refuse to enforce a judgment on the basis that it runs contrary to a U.S. statute.  A Canadian court would probably not refuse enforcement on that basis.  In both Canada and the U.S. one defence to the enforcement of foreign judgments is that the foreign law on which the judgment is based is contrary to public policy.  This U.S. decision in Google suggests this defence is broader in the U.S. than in Canada.   In Canada public policy is equated to fundamental morality.  Inconsistency between statute law and a judgment does not necessarily mean the judgment offends public policy, particularly if the statute is not a criminal statute.  In Boardwalk Regency v Maalouf (1992) 6 O.R. (3d) 737 the Ontario Court of Appeal rejected that defence, and upheld enforcement, in a case involving a foreign judgment for a gambling debt even though an Ontario statute prohibited enforcement of gambling debts.

Friday, 10 November 2017

OCA Lifts Requirement for Yaiguaje Plaintiffs to Post Security in Chevron Case

        A three member panel of the Ontario Court of Appeal has vacated the recent order of Epstein J.A. that granted Chevron’s motion for $1,000,000 in security for costs for the plaintiffs’ appeal of the ruling dismissing their action to enforce the $9 billion Equadorian judgment in Canada. (Yaiguaje v Chevron 2017 ONCA 827,  Hoy A.C.J.O., Cronk and Hourigan JJ.A).

         The panel pointed out that the broad discretionary power to award security includes the power to not order security even if the requirements of the rule are met. The panel emphasized that the justness of the order sought is the “overarching principle”, and that the Rules make clear that “security should be ordered only where the justness of the case demands it.”  

         The panel pointed to several unique circumstances of this case. They include 1.)  the fact the damages if collected would go not to the plaintiffs directly but into a trust for environmental rehabilitation and health care, thereby making the case public interest litigation, 2.) environmental devastation caused by Texaco (taken over by Chevron) severely hampered the plaintiffs’ ability to earn a living, 3.)  Chevron’s huge revenues, which make it clear Chevron did not need the protection of security, 4.) the plaintiffs’ loss of third party funding support, and 5.) the fact the appeal is not wholly devoid of merit.  (Most of these factors are reasons I gave in my previous posting as to why the Court should reverse the order for security).  

        Plainly Chevron sought the order as a tactic to bring the litigation to an end, without a hearing on its merits.  This ruling is a timely reminder that courts are to focus on the justness of security, and to be vigilant to ensure security for costs is not used for that.     

Wednesday, 1 November 2017

Yaiguaje v Chevron – Yaiguaje ordered to pay $1m for security for appeal

          The Ontario Court of Appeal (Epstein J.A., in chambers;  2017 ONCA 741) has ordered the Yaiguaje plaintiffs, who are appealing the summary judgment ruling dismissing their action to enforce the $9.5 billion Ecuadorian judgment in Canada, to post security of $942,951.
As the Court acknowledged, it has “broad discretion” on a motion for security for costs.  Rule 61.06(1) (b) says the Court “may make such order … as is just”.   However, unfortunately for the appellants, there are several aspects of the context of this litigation that the Court did not take into account.

          Because the appellants provided no evidence of impecuniosity -- that is, no evidence of their assets, income or financial backing if any-- the Court said it “must assume that ordering security for costs will not end this litigation”. (para 34).   The Court did not consider the fact that the basis for the $9.5 billion judgment is a finding of extensive environmental damage that presumably affected the local people’s property and impoverished them.     The judge referred to the damage as “alleged”.  But even if the judgment is flawed (and no Canadian court has ruled on this) that would not necessarily mean there was no significant damage or impoverishment.  The Court acknowledged that the appellants’ third- party funders have disavowed their financial interest … in light of the [New York court finding that the Ecuadorian judgment was not enforceable]”, but not the fact this is an indication that the appellants may have difficulty attracting financing. 

          As well, the appellants may have very sound reasons to not divulge details of their finances.   One, Chevron has vowed to “fight this case till Hell freezes over, then fight it out on the ice”, a sign that Chevron might come down hard on the plaintiffs later in respect of costs if Chevron wins the appeal, so as to deter others from suing it. Two, given the large number of plaintiffs, its likely that some have a lot more assets and income than others and thus would be targeted for collection, with the result that they may have to pay a disproportionate amount of the costs, which would deter them from staying in and supporting the action. 

           Because the Court ruled the appellants are not impecunious, the Court required them to demonstrate their appeal has a “good chance of success”.    Had they shown impecuniosity, they would need only to show their appeal is not devoid of merit in order to avoid security.  The “good chance of success” requirement is at odds with the public interest in having novel cases heard.   The appeal would be about whether the assets of Chevron Canada are exigible for the judgment against Chevron Corporation, in other words, about corporate separateness and piercing the corporate veil. have dealt   As Epstein J.A. admitted, the Supreme Court of Canada, earlier in this same litigation, “seemingly left open the possibility of rethinking the doctrines of corporate separateness and presumably the principles behind piercing the corporate veil as well”.  The order for security may well block the appeal from proceeding.   (para 52)  

          Another factor the Court ought to have taken into account is whether Chevron would be significantly prejudiced if denied security.    The amount of security, $942,951, represents 0.0000386 % of the profits Chevron Corporation received in 2014 -- CAD$24,370,650,000. Put another way, in 2014 Chevron Corporation earned CAD$942,951 in profits every twenty minutes.   The $942,951 is equal to 0.0000028% of Chevron’s assets, which that year were worth, all in, CAD$334,481,194,800.*      It is obvious that Chevron moved for security not due to a concern about the costs but as a means to block the appeal and thus win the case.    

          The Court acknowledged the amount of security is high, but noted “it pales in comparison to the over $9.5 billion [Ecuadorian judgment]” (para. 69).    However, the amount likely also pales in comparison with the total amount Chevron has spent on this case around the world.  Also, the costs are high at least in part because Chevron Corporation and Chevron Canada each have their own team of lawyers. Four lawyers appeared for Chevron and its affiliates at the motion for security, and there were six for the 2015 appeal to the Supreme Court of Canada.   Broad discretion ought to include taking into account the apparent duplication and unnecessary costs.     The ruling is silent on this.   

         The ruling has been appealed, I understand to an en banc panel of three, which has reserved.   

         This writer hopes that forthcoming ruling on the appeal from Epstein J.A.’s ruling will address at least some of these factors, for the sake of the appellants but also for the sake of the development of the law on security for costs.

*These figures are taken from the Chevron Corporation annual report. Admittedly, Chevron earned less in 2015 and lost money in 2016.  I used the 2014 figures because the Canadian proceedings were underway at that time.