Friday, May 26, 2017

US Supreme Court Says Service By Mail in Canada is Okay


Water Splash Inc. v. Menon, 2017 No. 16-254, Supreme Court of the United States 581 U. S. ___ (2017)

 

The plaintiff, Water Splash Inc., is a corporation that produces aquatic playground systems.  The defendant, Tara Menon, is a former employee of Water Splash.  In 2013, Water Splash sued Menon in State Court in Texas, alleging that she had begun working for a competitor while still employed by Water Splash. 

 

Menon resided in Canada.   As a result, Water Splash sought and obtained permission from the Texas court to effect service of its complaint on Menon by mail.  After Menon declined to answer or otherwise enter an appearance, the Texas court issued a default judgment in favour of Water Splash.  Menon moved to set aside the judgment on the ground that she had not been properly served, but the trial court denied her motion. 

 

Menon appealed, arguing that service by mail does not “comport with the requirements of the Hague Service Convention”.   A majority of the Texas Court of Appeals sided with Menon and held that the Convention prohibited service of process by mail.  One Justice dissented.  The Court of Appeals declined further review and the matter made its way to the US Supreme Court.

 

In an 8 – 0 decision, the court found in favour of Water Splash and vacated the judgment of the Court of Appeals.  The Supreme Court remanded the case back to the Texas Trial Court for further consideration. 

 

The court’s reasoning is as follows.

 

The primary innovation of the Convention is that it requires each state to establish a central authority to receive requests for service of documents from other countries.  When a central authority receives an appropriate request it must serve the documents or arrange for their service and then provide a certificate of service.  However, submitting a request to a central authority is not the only method of service approved by the Convention.  At issue in this case was Article 10 of the convention which reads as follows:

 

10. Provided the State of destination does not object, the present Convention shall not interfere with

(a) the freedom to send judicial documents by postal channels directly to persons abroad,

(b) the freedom of judicial officers, officials or other competent persons of the State of origin to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination,

(c) the freedom of any person interested in a judicial proceeding to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination.

 

Articles 10(b) and 10(c) address additional methods of service that are permitted by the Convention (unless the receiving state objects).  By contrast, Article 10(a) does not expressly refer to “service”.  The question in this case was whether, despite this difference, Article 10(a) encompassed sending documents for the purposes of service. 

 

The US Supreme Court found that it did.  The key word in Article 10(a) “send” is a broad term and there is no apparent reason why it would exclude the transmission of documents for the purpose of service.  The Convention’s preamble and Article 1, limit the scope of the Convention to service of documents abroad and its full title includes the phrase “service abroad”.  The US Supreme Court had also previously held that the scope of the Convention is limited to service of documents.  It would therefore be strange if Article 10(a) concerned something other than service of documents.  Indeed such a reading would render Article 10(a) superfluous.  Since Article 1 already eliminated the possibility that the Convention would apply to any communications that do not culminate in service, in order for Article 10(a) to make sense it must pertain to sending documents for the purpose of service.  If the drafters of the Convention wished to limit Article 10(a) to something else, they could have said so as they did in other Articles.

 

Secondly, the structural considerations of the Convention strongly suggests that Article 10(a) pertains to service of documents.  Reading the word “send” as a broad concept that includes, but is not limited to, service is probably more plausible than interpreting the word to exclude service.  Indeed, the French version of the Convention which is equally authentic uses the word “adresser” which has consistently been understood to mean service or notice. 

 

Thirdly, extratextual sources are especially helpful in ascertaining Article 10(a)’s meaning.  The Convention’s drafting history strongly suggests that the drafters understood that service by postal channels was permissible.  In the half century since the Convention was adopted, the Executive Branch of the United States has consistently maintained that the Convention allows service by mail.  Also, other signatories to the Convention have adopted Water Splash’s view.

 

Fourthly, the fact that Article 10(a) encompasses service by mail does not mean that it affirmatively authorizes such service.  Rather, service by mail is permissible if the receiving state has not objected to service by mail and if such service is authorized under otherwise applicable law.  Because the Texas Court of Appeals concluded that the Convention prohibited service by mail, it did not consider whether Texas law authorized the method of service used by Water Splash.  The US Supreme Court remanded that issue and any other remaining issues back to the trial court in Texas for consideration.

Regards,

Blair

 

Wednesday, May 10, 2017

Law Society Ordered to Pay $1.3 Million in Costs


Law Society of Upper Canada v. DeMerchant, 2017 ONLSTA 5

 

In this case, the Appeal Division of Ontario's Law Society Tribunal, ordered the Law Society of Upper Canada (“LSUC”) to pay $650,000 each to Beth DeMerchant and Darren Sukonick, two lawyers at Torys LLP who were successful in defending themselves against professional misconduct allegations brought by the LSUC.  The LSUC had alleged that the lawyers had acted in a conflict of interest while working on the sale of Conrad Black’s Hollinger Group of Companies.  Both lawyers have since retired from the practice of law.

 

The legal saga lasted 11 years and ended with the Appeal Division of the Tribunal finding that the hearing should never have taken the nearly 140 days that it took.  The Tribunal found the Law Society bore the lion’s share of responsibility for its length.  The LSUC’s definition of the issues, its approach to examination and its lack of focus on the legal test for conflicts of interest were the largest factors in a hearing whose time and costs were grossly disproportionate to the issues at stake.   In the end the Appeal Division found that approximately 110 hearing days were wasted and were not necessary. 

 

The LSUC first learned of an issue between Torys and Hollinger International Inc. from a Globe and Mail article in 2005.  It instituted an investigation into the lawyers' professional conduct.  The allegations included that the lawyers may have acted in a conflict of interest. 

 

In November of 2008, the LSUC concluded that there had been a conflict of interest which impacted the lawyers' ability to represent the legal interests of their clients.  The LSUC’s Proceeding Authorization Committee (“PAC”) then authorized an application for professional misconduct against the lawyers.

 

A hearing panel of the LSUC tribunal held that the proceedings were not unwarranted and that there was a significant public interest in the issues and that it was appropriate for the LSUC to conduct an investigation. 

 

These findings were overturned by the Appeal Division in part.   It held that there were multiple issues that both individually and combined warranted PAC’s decision to commence the application.  There was no evidence of bad faith nor was the application doomed to fail. 

 

However, the Appeal Division criticized the LSUC harshly on the conduct of the hearing. 

 

It held that typically allegations of conflict of interest would, if proven, likely have led to no more of a short suspension.  The LSUC attempted to prove that the lawyers’ conflict had manifested itself in misjudgments in their work for the corporations that resulted from preferences for the interests of executives of the corporations.  The theory of the LSUC's case was that the lawyers should have taken steps when working on the transactions to protect the public companies from exploitation by the executives.  These were serious allegations but importantly did not form part of the legal test for conflict of interest.

 

The hearing started on April 26, 2010 and completed on December 13, 2012, after nearly 140 days of hearing.  The hearing panel found that after the lawyers had presented their expert evidence about general practice in the corporate bar, the proceedings became unwarranted and the LSUC should have re-evaluated its case. 

 

On appeal, the Appeal Division found that continuing after the lawyers’ expert evidence was not the fundamental problem.  A valid legal theory of conflict of interest continued to exist but the problems with the case and how the LSUC conducted the hearings started long before that.

 

The Appeal Division found that the time taken by the LSUC to present its case was unprecedented in the history of LSUC discipline proceedings.  It began with a four day opening statement, conducted cross-examinations of the lawyers for more than 40 hearing days.  It found that the LSUC had acted unreasonably and caused costs to be wasted throughout the hearing by disregarding the need for the proceedings to be proportionate to the issues at stake in their seriousness; failing to focus its evidence in cross-examination on the test for conflict of interest; conducting argumentative cross-examinations of unprecedented length and detail that added little to the analysis and were not justified by the issues at stake in the case; and taking issue with detailed aspects of the lawyers’ work in a complex and specialized area of practice with no expert or other evidentiary support.

 

The tribunal held that it was important to explicitly acknowledge in its reasons the stress the proceedings had put on the lawyers given the pall that hung over their careers for longer than it should have, the months they spent in the hearing room dealing with these allegations and the evident strain of so many days on the witness stand under cross-examination. 

 

In addition, it found that the LSUC had wasted costs without reasonable cause throughout the hearing.  Its conduct at the hearing was entirely disproportionate to what was at stake.  The LSUC did not focus on the key elements of the test for conflict of interest.  Cross-examinations focused on unimportant details, were repetitive and argumentative.

 

In calculating the costs, the Appeal Division found that the lawyers should be awarded costs of approximately 110 hearing days.  Counsel representing the lawyers had practiced for over 20 years and the hourly rate for lawyers with that level of experience under the LSUC’s current tariff was $350.  This resulted in an award of $650,000 each (as opposed to the $1.8 million that they were seeking).   The LSUC also awarded the lawyers costs of the appeal of $17,500.

 

In March of 2017, the lawyers commenced an action against the LSUC claiming over $2 million in damages for misfeasance in public office, negligent investigation, abuse of process, malicious prosecution and libel.  There will be much to follow on this case.  

Regards,

Blair