Wednesday, July 2, 2014

BC Court Enforces $4.5 Million SEC Disgorgement Judgment

In dismissing an appeal from a order enforcing a United States judgment, the British Columbia Court of Appeal held that it was the character of the foreign judgment that governed whether it was enforceable, not the way in which the parties responded to it. 

On August 18, 2011, the United States District Court for the Southern District of New York (“US Court”) rendered a judgment against William Peever and Phillip Curtis.  The judgment was for injunctive relief and the disgorgement of profits derived from illegal price manipulation of stock of American corporations.  The suit was advanced by the United States Securities and Exchange Commission (“SEC”).


Peever and Curtis consented to the injunction, admitted liability and did not contest the quantum of the judgment.  They were ordered by the US Court to pay the sum of $4,506,535.66 into court.


The SEC brought an action in British Columbia to ask the court of that province to recognize and enforce the judgment.  Peever and Curtis resisted the enforcement proceedings on the basis that the judgment was penal or public in nature, a recognized exception to the enforcement of foreign judgments in Canada.  Notwithstanding such argument, a BC trial judge held that the judgment of the US Court should be recognized and enforced.  Peever and Curtis appealed from that decision to the British Columbia Court of Appeal.


In dismissing the appeal ( United States (Securities and Exchange Commission) v. Peever 2014 BCCA 141 ) the Court of Appeal recited the facts and noted that the US Court’s judgment was final, obtained in a civil proceeding within the court’s jurisdiction and from which no appeal was taken. 


In respect of the appellants' arguments that the judgment was penal or public in nature, the Court disagreed, holding that the SEC’s mandate was to enforce securities laws.  On the evidence, a vital part of its mandate was to distribute disgorged funds to defrauded investors.  Peever and Curtis argued (and it was not disputed by the SEC) that the SEC is not bound by statute to distribute disgorged funds in accordance with its policy.  Should it not do so, any fund established would be retained by the United States federal government as general revenue, although that would be subject to court approval.  Peever and Curtis argued that in that event, a judgment for disgorgement would not constitute a civil remedy because the government had suffered no loss but would rather serve a penal purpose in imposing a fine for wrongdoing or a public purpose in deterring others from offending.


The trial judge considered that argument and held that, given the judgment was prima facie enforceable (a final judgment within the US Court’s jurisdiction), Peever and Curtis bore the onus of establishing that it was not to be enforced because to do so would “accomplish a foreign penal or public law purpose”.  The question became whether they had demonstrated that it was more likely than not that if the judgment was enforced in BC its enforcement would serve a penal or public law purpose in the United States.  The trial court held that based on the evidence, the SEC’s policy was to distribute the proceeds of judgment to injured investors and that given the judgment described a mechanism that the SEC could employ to achieve that distribution he found that Peever and Curtis had not shown that it was more likely than not that the SEC would simply keep the proceeds of judgment to itself.  Accordingly, he found that the defendants had not discharged their burden of proof of showing that enforcement of the judgment in BC would be to serve a foreign penal or public law purpose. 


On appeal, Peever and Curtis argued that the trial judge had erred in burdening them with the onus of establishing that argument. 


However, the BC Court of Appeal agreed with the trial judge.  It held that in its view, it was the subject or character of the judgment itself that governed, quite apart from the way in which the parties responded to it. 

On its terms, the judgment was clearly not penal or public in nature.  It provided for the disgorgement of profits with such profits being paid into court to be invested and held as a fund subject to further court order.  It contemplated the SEC obtaining court approval of a plan for distribution to the victims of the fraud.  The disgorging of profits facilitated restitution which was a civil remedy.  As a result, the Court of Appeal concluded that there was simply no basis on which it could be said that the character of the judgment was penal or public in nature. 




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