Momentous.ca Corporation v. Canadian American Association ofProfessional Baseball Ltd.

Momentous.ca Corporation v. Canadian American Association ofProfessional Baseball Ltd. Collection Decisions of the Court of Appeal Date 2010-10-29 Neutral citation 2010 ONCA 722 Docket numbers C51406 Judges Laskin, John Ivan; Gillese, Eileen E.; Juriansz, Russell G. Subject Civil Decision Content CITATION: Momentous.ca Corporation v. Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722 DATE: 20101029 DOCKET: C51406 COURT OF APPEAL FOR ONTARIO Laskin, Gillese and Juriansz JJ.A. BETWEEN Momentous.ca Corporation, Rapidz Sports and Entertainment Inc., Rapidz Baseball Club Inc. and Zip.ca Inc. Plaintiffs (Appellants) and Canadian American Association of Professional Baseball Ltd., Inside the Park LLC, Greg Lockard, Dan Moushon, Bruce Murdoch, City of Ottawa and Miles Wolff Defendants (Respondents) Susan M. Brown, for the appellants Eric M. Appotive, for the respondent, Miles Wolff Pasquale Santini and Samantha A. Iturregui, for the respondents, Canadian American Association of Professional Baseball Ltd., Inside the Park LLC, Greg Lockard, Dan Moushon and Bruce Murdoch Benoit M. Duchesne, for the respondent, City of Ottawa Heard: April 23, 2010 On appeal from the order of Justice Lynn Ratushny of the Superior Court of Justice, dated November 24, 2009, and the costs order dated January 5, 2010. Laskin J.A: A. Introduction [1] This litigation began following the demise – after a brief life – of a professional baseball team in Ottawa. The issues on the appeal concern the jurisdiction of an Ontario court to entertain the plaintiffs’ action. [2] Rapidz Baseball fielded a team in the Can-Am League during the 2008 season. It played its home games in a stadium owned by the City of Ottawa. However, because of losses it had incurred during the season, Rapidz Baseball gave the League notice that it would be unable to operate beyond 2008. It applied under the League’s by-laws to withdraw voluntarily because of financial hardship. The League’s Board of Directors rejected Rapidz Baseball’s application. Instead, they terminated its membership and drew down a $200,000 letter of credit Rapidz Baseball had been required to post under the by-laws. [3] Rapidz Baseball and its related companies sued the League and its principals, and the City of Ottawa, both in contract and tort. They seek various heads of declaratory relief and damages. They claim that the League illegally terminated the membership of Rapidz Baseball and had no right to draw down the letter of credit. They allege that “the defendants intentionally initiated an interlocking sequence of indebtedness all to the risk and jeopardy” of the plaintiffs. [4] The League and its principals (the Can-Am defendants) brought a motion under rule 21.01(3)(a) of the Rules of Civil Procedure to stay or dismiss the action on the ground that an Ontario court has no jurisdiction over the subject matter of the action. They relied on the choice of forum and arbitration clauses in the League’s by-laws and in the agreements signed by the plaintiffs, under which the plaintiffs agreed that all disputes with the League would be resolved in the state of North Carolina and would be subject to arbitration. The motion judge, Ratushny J., granted the motion and dismissed the plaintiffs’ action. [5] The plaintiffs make three submissions on their appeal: (1) An Ontario court should entertain the action because the Can-Am defendants attorned to its jurisdiction by filing a notice of intent to defend, and then a statement of defence in which they defended the plaintiffs’ claim on the merits; (2) The Can-Am defendants cannot rely on the choice of forum and arbitration clauses in the agreements signed by the plaintiffs because they fundamentally breached these agreements; and (3) The Ontario action ought to be allowed to proceed against the City of Ottawa and the defendant Wolff, in his personal capacity, because neither is a party to any agreement with the League. B. Background (1) The parties [6] Rapidz Baseball is owned by Rapidz Sports, which in turn is owned by Momentous. Zip is a related company. All the plaintiffs are Ontario corporations. [7] The Can-Am defendants consist of the Canadian American Association of Professional Baseball Ltd., Inside the Park LLC, Lockard, Moushon and Murdoch. The Canadian American Association of Professional Baseball Ltd. is a North Carolina non-profit corporation, which runs the League. Inside the Park LLC is a North Carolina limited liability company owned equally by members of the League. Moushon was the President of the League and Lockard was the Chairman of the League. Murdoch is alleged to have acted for the League. [8] The defendant Wolff is sued in two capacities: as a director and the Commissioner of the League, and as the co-owner, along with Rapidz Sports, of Ottawa Pro Baseball Inc., the entity holding the right to play professional baseball in Ottawa. The City is sued as owner of the stadium where the team played. [9] All of the defendants, other than Murdoch and the City, are non-Ontario defendants, carrying on business or living in the United States. (2) The agreement between Wolff and the plaintiffs [10] The Ottawa Lynx was a triple-A baseball team, which played in Ottawa from 1993 to 2007. After the Lynx folded, negotiations began to return professional baseball to the City. [11] At the time, Inside the Park owned a membership in the Can-Am League, entitling it to play professional baseball in the stadium owned by the City of Ottawa. Inside the Park leased that membership to Ottawa Pro Baseball Inc. (OPBI), which was then wholly owned by Wolff. [12] In early May 2008, Wolff and the plaintiffs reached a letter agreement under which Rapidz Sports acquired a 49 per cent interest in OPBI, and Wolff retained a 51 per cent interest. Rapidz Sport agreed to manage and operate a professional baseball team – Rapidz Baseball – in the Can-Am League. [13] Under the terms of the letter agreement, the plaintiffs undertook various financial obligations. Rapidz Baseball agreed to post an irrevocable $200,000 letter of credit with the League as required by its by-laws. The plaintiffs also agreed to guarantee Wolff’s $110,000 shareholder loan to OPBI and to indemnify him on his covenant to pay stadium rent to the City of Ottawa. None of the Can-Am defendants is a party to the letter agreement between Wolff and the plaintiffs. (3) The Agreements affecting the League and the League’s by-laws: withdrawal, choice of forum and arbitration provisions [14] The plaintiffs signed two agreements governing Rapidz Baseball’s entry into the Can-Am League: a lease agreement and a League affiliation agreement. Each agreement contains provisions requiring disputes to be arbitrated and enforced in the courts of North Carolina. The plaintiffs also agreed to abide by the League’s by-laws, which contain an internal dispute resolution process. (a) The Lease Agreement [15] The lease agreement was made between Inside the Park, OPBI and Rapidz Baseball, and was approved by the League. It provided for a two-year lease for the stadium. [16] Clause 6 of the lease agreement stipulates that Rapidz Baseball post a $200,000 letter of credit “as required by the League’s by-laws”. Clause 27(a) binds the parties “to use the arbitration provisions in the by-laws as the exclusive remedy to resolve any dispute” with the League. And, the parties agreed to waive any “resort to the legal system in any state or federal location, including Canada, for any claim, cause of action or relief”, and instead “to look exclusively to the dispute resolution provisions contained in the by-laws”. (b) The League Affiliation Agreement [17] The League affiliation agreement was signed in May 2008 by the League, Inside the Park, OPBI and Rapidz Baseball. Clause 1 of the agreement provides, in part, that in the event of Rapidz Baseball’s “unsanctioned withdrawal” it would be required to forfeit to the League as liquidated damages, the $200,000 letter of credit. [18] Clause 6 of the agreement deals with the governing law. It provides that “all matters regarding the interpretation and enforcement of the League agreements and this agreement shall be governed by the law of the state of North Carolina”. Clause 7, entitled consent to jurisdiction, stipulates that “subject to the arbitration provisions set forth in the League agreements, the parties submit to personal jurisdiction in the state of North Carolina, the courts thereof … for the purpose of any suit, action or other proceeding arising or affecting the League agreements or this agreement.” (c) The Can-Am League by-laws [19] The League by-laws consist of a series of articles. Some are germane to this appeal. [20] Article 2.1 C provides that “each member shall at all times be bound by and comply with all terms, provisions and conditions of the League’s articles of incorporation, these by-laws, the affiliation agreement between the League and each member, and the regulations and rules of baseball”. Article 2.8 of the by-laws addresses withdrawal from the League, and provides for two types of withdrawal – voluntary withdrawal and unsanctioned withdrawal. A member team can withdraw voluntarily from the League on a showing of financial hardship to the Board and on the approval of three-quarters of the Directors. On a voluntary withdrawal the member is entitled to the return of the letter of credit it has posted. Rapidz Baseball applied to withdraw voluntarily after the 2008 season, but the Directors rejected its application. [21] Any withdrawal that is not a voluntary withdrawal is an unsanctioned withdrawal. On an unsanctioned withdrawal, the member must pay an exit fee of $200,000 – in other words, forfeit the letter of credit to the League. [22] Article 2.9 of the by-laws deals with involuntary termination or suspension. An involuntary termination can be either automatic or non-automatic. One of the grounds for automatic termination, relied on by the League to terminate Rapidsz Baseball’s membership, is the member’s failure to take action reasonably necessary to operate as a going concern. Under Article 2.11, on an involuntary termination of membership, the member is stripped of its rights to the letter of credit. [23] Article 13.2 of the by-laws provides that any dispute between a member and the League shall be heard and decided by the Board. Under Article 13.4, on filing an appeal bond, a member may appeal the Board’s decision to the Board itself. Article 13.6 stipulates that the dispute and appeal process “shall be the exclusive and sole remedy of all the parties thereto”. (4) The demise of Rapidz Baseball [24] During the 2008 season, Rapidz Baseball lost over $1 million. By September, it had ceased operations. It gave notice to the League that it could not field a team in 2009. It asked to withdraw from the League voluntarily because of financial hardship. Indeed, it acknowledged its insolvency, and gave notice of its intention to make a proposal to its creditors. (5) The League’s response [25] On being told that Rapidz Baseball could no longer operate, the League served notice that it would automatically terminate the team’s membership under Article 2.9 of the by-laws. In late September, the Board dismissed Rapidz Baseball’s application for voluntary withdrawal. Instead, after a hearing, the Board did automatically terminate the team’s membership. Rapidz Baseball’s appeal from the Board’s decision was dismissed for failure to file the appeal bond required by the by-laws. The League then called on Rapidz Baseball’s $200,000 letter of credit. [26] In December 2008, the League brought a motion in the North Carolina General Court of Justice to confirm the “arbitration award”, that is, its decision to terminate Rapidz Baseball’s membership, and to confirm that it had the right to draw down the letter of credit. In turn, Rapidz Baseball brought a motion to dismiss the League’s motion. The decisions on these motions were pending at the time of the appeal before us. (6) The litigation (a) Wolff’s litigation [27] In November 2008, Wolff made a demand on Momentous as guarantor of his shareholder’s loan to OPBI. In December 2008, he made a demand on Zip as indemnitor of the stadium rent for 2008. When payment was not forthcoming, Wolff sued Momentous and Zip in the North Carolina courts. [28] Momentous and Zip brought motions to dismiss Wolff’s actions on the basis of lack of personal jurisdiction in North Carolina. Their motions were granted. [29] In August 2009, Wolff sued in Ontario for the same relief that he had sought in North Carolina. (b) The plaintiffs’ claims [30] In January 2009, the plaintiffs started their lawsuit in Ontario. They allege breach of contract and the torts of intentional misrepresentation, intentional interference with contractual relations and civil conspiracy. They seek myriad heads of declaratory relief, including declarations that the League wrongfully denied their request for voluntary withdrawal, that Rapidz Baseball did not violate the League affiliation agreement, and that Rapidz Baseball’s membership in the Can-Am League was illegally terminated. The plaintiffs seek against all the defendants damages of $3 million and punitive damages of $3 million. [31] The Can-Am defendants and Wolff have delivered statements of defence. Each of their pleadings defends the action on the merits, but also pleads and relies on the arbitration and choice of forum provisions in the lease agreement, League affiliation agreement and League by-laws. The City of Ottawa has delivered a notice of intent to defend, but not a statement of defence. C. Analysis (1) First issue: Should an Ontario court entertain the plaintiffs’ action because the Can-Am defendants attorned to its jurisdiction? [32] As I have discussed, under the lease agreement, the League affiliation agreement and the League’s by-laws the plaintiffs agreed that any dispute between Rapidz Baseball and the League would be resolved by arbitration (or the League’s internal dispute resolution process) and could be litigated only in the courts of North Carolina. In the light of these arbitration and choice of forum provisions, and relying on the Supreme Court of Canada’s judgment in Z.I. Pompey Industrie v. ECU‑Line N.V., [2003] 1 S.C.R. 450, the motion judge held that the plaintiffs had to show “strong cause” why they should not be bound by these provisions to which they had agreed. She found that the plaintiffs had failed to do so, and therefore dismissed the action. [33] The plaintiffs do not argue that their dispute with the Can-Am defendants falls outside of the ambit of the choice of forum and arbitration clauses to which they agreed. However, they submit that the motion judge erred in her finding because she failed to give effect to the defendants’ attornment to the jurisdiction of the Ontario court. The plaintiffs argue that the Can-Am defendants and Wolff attorned to the jurisdiction of the Ontario court by filing a statement of defence contesting the merits of the plaintiffs’ claim. Thus, the plaintiffs say that an Ontario court both can and should assume jurisdiction over their action. [34] I agree that an Ontario court has jurisdiction, but, in my opinion, the motion judge correctly found that an Ontario court should not take jurisdiction. Both the choice of forum and arbitration clauses dictate this result. I will deal first with the effect of the choice of forum clauses, and then with the effect of the arbitration or internal dispute resolution clauses. [35] Questions about the jurisdiction of an Ontario court over a claim typically raise two separate issues. The first issue is whether an Ontario court has or can assume jurisdiction. Attornment is relevant to this issue. An Ontario court has jurisdiction if the defendant consents to its jurisdiction or is present in Ontario, and can assume jurisdiction on being satisfied of “a real and substantial connection” to Ontario: see Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.), at para. 19. One of the ways that a defendant consents to the jurisdiction of an Ontario court is by attornment – for example, as in this case, by delivering a statement of defence responding to the merits of the plaintiffs’ claim: see Clinton v. Ford (1982), 37 O.R. (2d) 448 (C.A.). Therefore, as the non-Ontario defendants attorned to the jurisdiction of the Ontario court and the Ontario defendants are present in the province, an Ontario court has jurisdiction over the plaintiffs’ claim. But that does not end the matter. [36] When an Ontario court has, or can assume jurisdiction, a second issue arises: whether an Ontario court should take jurisdiction. Decisions on whether a court should take jurisdiction are discretionary. [37] The case law recognizes two different classes of cases in which the court is asked to exercise its discretion. One arises on a forum non conveniens motion; the other where the parties have agreed to a forum to resolve their disputes. Each class of case has its own onus, test and rationale. [38] On the more usual forum non conveniens motion, a court must determine whether there is another more convenient forum to try the claim. The defendant has the onus of showing a more convenient forum. The test invites the application of a now well-recognized list of considerations, which assess the connections to the two competing forums. And the court’s discretion is guided by the twin rationales of efficiency and fairness: see, for example, Young v. Tyco International of Canada Ltd. (2008), 92 O.R. (3d) 161 (C.A.). [39] In the other class of case, of which the present appeal is an example, the parties have agreed to a forum to resolve their disputes. In this class of case, the onus is reversed. The plaintiff must show why Ontario should displace the forum chosen by the parties. The test is “strong cause” – the plaintiff must show strong cause why the choice of forum clause should not prevail. And in exercising its discretion, the court is guided by the rationale that ordinarily parties should be held to the bargain they have made. In the present context, if a team wants to play in a league, it must adhere to the league’s rules: see Pompey. [40] The motion judge was therefore correct in analyzing the motion before her under the strong cause test. And she was also correct in finding that the plaintiffs had not shown strong cause to displace the choice of forum clause agreed to by the parties. [41] What is strong cause? In Expedition Helicopters Inc. v. Honeywell Inc. (2010), 100 O.R. (3d) 241 (C.A.) at para. 24, my colleague, Juriansz J.A., set out a useful list of factors that may amount to strong cause: A forum selection clause in a commercial contract should be given effect. The factors that may justify departure from that general principle are few. The few factors that might be considered include the plaintiff was induced to agree to the clause by fraud or improper inducement or the contract is otherwise unenforceable, the court in the selected forum does not accept jurisdiction or otherwise is unable to deal with the claim, the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to the clause, the plaintiff can no longer expect a fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated, or enforcing the clause in the particular case would frustrate some clear public policy. Apart from circumstances such as these, a forum selection clause in a commercial contract should be enforced. [42] To this list, I would add a case in which the defendant has inordinately delayed in bringing its jurisdiction motion. An example of this kind of case is Mobile Mini Inc. v. Centreline Equipment Rentals Ltd. (2004), 190 O.A.C. 149 (C.A.). In that case, the parties had agreed to litigate disputes in Arizona. However, the plaintiff sued in Ontario. The defendant waited over three years and until the case was set to be scheduled for trial before moving to challenge the jurisdiction of the Ontario court. In the meantime, it had taken several steps to defend the Ontario action, including delivering a defence and counter-claim and participating in production and discovery. The court held that the delay and the defendant’s conduct justified refusing to enforce the choice of forum clause. To the same effect, see Sault College of Applied Arts and Technology v. Agresso Corp., 2007 ONCA 525. [43] In seeking to maintain its action in Ontario, the plaintiffs do not rely on any of the factors cited by Juriansz J.A. other than perhaps their claim of fundamental breach of contract, which I will address separately. Nor do they allege that the defendants delayed in bringing their motion. The defendants, indeed, moved reasonably promptly after delivering their defence. Their notice of motion was served in August 2009, eight months after the plaintiffs started their action. [44] The sole ground the plaintiffs rely on to show strong cause is the defendants’ attornment to the jurisdiction of the Ontario court. Attornment, however, is relevant only to the question whether an Ontario court has jurisdiction. It has little or no relevance to the question whether an Ontario court should exercise that jurisdiction. [45] Motions challenging the jurisdiction of an Ontario court may be brought under s. 106 of the Courts of Justice Act, rule 17.06 and rule 21.01(3)(a) of the Rules of Civil Procedure. The Can-Am defendants brought their motion under rule 21.01(3)(a). A motion under that rule, unlike a motion under rule 17.06, may be brought after the delivery of a notice of intent to defend and a statement of defence. Nothing in rule 21.01(3)(a) suggests that a defendant is precluded from contesting jurisdiction because its statement of defence responds to the merits of a plaintiff’s claim. The defendant is required only to bring its motion “quickly after the commencement of the suit”: see Pompey at paras. 21 and 35. The Can-Am defendants met that requirement. [46] Moreover, the plaintiffs agreed not only to a choice of forum provision, but as well to arbitration or internal dispute resolution provisions. This court has stated more than once that when the parties agree to arbitration, the court shall favour giving effect to their agreement and preclude them from litigating in the courts: see, for example, Mantini v. Smith Lyons LLP (2003), 64 O.R. (3d) 505 (C.A.); Dancap Productions Inc. v. Key Brand Entertainment Inc. (2009), 246 O.A.C. 226 (C.A.). [47] And where, as in the present case, the parties have agreed to both choice of forum and arbitration (or internal dispute resolution) provisions, the court has an even firmer basis to preclude the plaintiffs from suing in Ontario: see GreCon Dimter Inc. v. J.R. Normand Inc., [2005] 2 S.C.R. 401 at para. 22. The motion judge therefore made no error in concluding that an Ontario court should not entertain the plaintiffs’ action. I would not give effect to this ground of appeal. (2) Second issue: Can the Can-Am defendants rely on the choice of forum and arbitration clauses when the plaintiffs allege that they fundamentally breached their agreements? [48] The plaintiffs contend that the motion judge should not have given effect to the choice of forum and arbitration provisions found in the lease agreement and the League affiliation agreement, and stipulated in the by-laws, because the Can-Am defendants fundamentally breached those agreements. The motion judge dealt with and rejected this contention at para. 31 of her reasons: Neither do I understand why the issue of fundamental breach raised by the plaintiffs should not be dealt with under the law and by the forum chosen by the parties to the Lease Agreement, the League Affiliation Agreement and as set out in the Bylaws. As stated in Pompey, at paras. 30 and 31: [A] court, in the context of an application for a stay to uphold a forum selection clause in a bill of lading, must not delve into whether one party has deviated from, or fundamentally breached an otherwise validly formed contract. Such inquiries would render forum selection clauses illusory since most disputes will involve allegations which, if proved, will make the agreement terminable or voidable by the aggrieved party. [49] I agree with her reasons and have nothing to add to them. (3) Third issue: Should the Ontario action be allowed to proceed against the City of Ottawa and Wolff in his personal capacity, because neither is a party to any agreement with the League? [50] The motion judge dismissed the plaintiffs’ action in its entirety, which means that she dismissed the action not only against the Can-am defendants but also against the City of Ottawa and Wolff. [51] However, the City of Ottawa is not a party to any agreement with the League. Nor did it bring a motion contesting the jurisdiction of the Ontario court. Wolff is sued not only as a Director and Commissioner of the League, but also personally as a shareholder in OPBI and in connection with his shareholder loan and covenant to pay stadium rent. In his personal capacity he is not a party to any agreement with the League. He too did not bring a motion challenging the jurisdiction of the Ontario court. The plaintiffs, therefore, submit that neither the City of Ottawa nor Wolff personally can rely on the choice of forum and arbitration clauses, and must instead submit to the jurisdiction of the Ontario court. [52] The plaintiffs’ submission might have some validity but for the way they have pleaded their claim. The plaintiffs have alleged that all of the defendants, including the City and Wolff personally, are necessary parties to the same action. They have alleged that their claims for relief arise out of the same transactions and occurrences, and raise common questions of fact and law. And they have alleged that the joinder of all claims will promote the convenient administration of justice. Moreover, their civil conspiracy claim alleges an agreement among all defendants to cause the plaintiffs damage. [53] In the light of these allegations the plaintiffs cannot maintain that they ought to be allowed to proceed separately in Ontario against the City of Ottawa and Wolff personally. Their claims against the City and Wolff personally are so intertwined with the claims against the Can-Am defendants that they must all be dealt with together. Moreover, the claims against the City and Wolff all relate to and arise out of the plaintiffs’ dealings with the League. The choice of forum clause agreed to by the plaintiffs must therefore govern where their claims should be heard. Thus, even though neither the City nor Wolff personally is a party to an agreement containing a choice of forum clause, on the present state of the pleadings, the claims against them should be dealt with not in Ontario but in North Carolina: see Crown Resources Corp. S.A. v. National Iranian Oil Co. (2006), 273 D.L.R. (4th) 65 (Ont. C.A.) at para. 34. [54] However, I think it would be possible for the plaintiffs to assert their claims against Wolff personally in Ontario. Those claims are quite severable from the claims against the Can-Am defendants, the City and Wolff in his capacity as Director and Commissioner of the League. Wolff has already sued the plaintiffs in Ontario on his guarantee and indemnity. The plaintiffs could assert their claims against him personally by counter-claiming in that action. Or, they could redraft their statement of claim to take out their allegations against Wolff personally, and incorporate them in a new statement of claim. [55] Similarly, the plaintiffs could maintain an action against the City in Ontario by redrafting their claim to focus on their principal allegation: that the City reneged on a commitment for a long term lease of the stadium. However, on the plaintiffs’ current pleading, I would not give effect to this ground of appeal. D. Conclusion [56] Because of the choice of forum and arbitration clauses in the lease agreement, League affiliation agreement and League by-laws, I agree with the motion judge that Ontario should not take jurisdiction over the plaintiffs’ claims. I would dismiss the appeal. [57] The parties may make brief written submissions on the costs of the appeal within 20 days of the release of these reasons. RELEASED: Oct. 29, 2010 “JL” “John Laskin J.A.” “I agree E.E. Gillese J.A.” “I agree R.G. Juriansz J.A.”