CITATION:ISSI Inc. v. SASSY uic., 2Q16 ONSC 557
COURT FILE NO.: CV-15-52254
DATE: 20160121
SUPERIOR COURT OF JUSTICE -ONTARIO
12E:
ISSI Inc.(fo~~nierly ISIS Inc.), plaintiff
I_~►11~
SASSY Inc., SASSY 14 LLC and Angelcare Monitor's Inc.
BEFORE:
Sean F. Dunphy, J.
COiJ~SCL: ~Llelvyn Solmon and .Nancy Totcfgis, for the Plaintiff
Robert Cohen,for the Defendants
HEA1tU:
January 21, 2016
ENDORSEMENT
[1]
Tlus motion was originally framed as an anti-suit injunction. By the time it carne on for a
hearing, the plaintiff/moving party had mo~phed it into a request to enforce an undertaking to the
United States Bankruptcy Court in a motion brought despite {or because ofl an existing anti-suit
injunction issued by that court. Whether fran~ted as an anti-anti-spit injunction or a motion to
enforce an unde~•taking, it would in nny view be counterproductive to entertain such a motion at
this stage and I decline to grant the relief requested however ptu•ased.
[2]
The plaintiff in this proceeding, once knotivn as "ISIS Inc." has changed its taarne to the
less-charged acronym of "ISSI Inc.". It is a Canadian corporation. It is a party to a 2010
distribution agreement with a United States company headquartered in New Jersey known as
Sassy Inc. {or "Old Sassy") providing ISSI with the exclusive right to import and sell certain
products for air ii~de~ni#e ter~rn. X do a~ot lave a copy of the Distribution Agreement in evidence
before me.
[3]
While operating under that Agreement, ISSI purchased goods from time to time under•
purchase orders that it issued. Those purchase orders contained fine p~•int on the back that
required seveX•al rounds of enlargement before being legible. Included in the fine print, however,
was a submission by the seller #o the exclusive jurisdiction of Ontario courts and Ontario law.
j4]
The distribution system established under the Agreement appears to have required at least
some pux•chase orders to be sezat by ISSI directly to various factories in China as the request of
Sassy Inc. and payment for the goods so ordered was made directly to the factozies in at least
some cases. In other cases, pu~•chase o~•ders we~•e routed directly through Sassy Inc.
-Page 2 [5]
On the stretagth of these purchase orders, the plaintiff would have zne assunne that the
relationship between the ISSI and Old Sassy is necessarily one governed by Ontario law. I
remain agnostic on the questioix pending (a) demonstration of relevance; and (b).further
evidence. As noted, I do not have a copy of the Distribution Agreement nor more than a sparse
description of its context.
[6]
A unilate~~al declaration contained on the back of a piuchase order itself issued in the
context of a relationship governed by other agreements may ox• may not reflect the terms of the
agreement between the pa~~ties. It may be a factor•, but a more fulsome exploration of the
evidence than has been possible at this point would be required to reach a reliable conclusion.
Sassy Inc, being essentially out of the picture at this point foi• the reasons described belo~v, the
relevance ofthe question is not however readily apparent.
[7]
Old Sassy did not enjoy unbridled success in its commercial endeavours. It filed a
petition under Chapter 11 of the United States Bankzuptcy Code on June 18, 2014. Tn the course
ofthose bankruptcy proceedings, supervised by Kaplan J. of the United States Bankruptcy Court
for the District of New Jersey, a process to sell the assets of Sassy Inc. was undertaken. On
August 19, 2014, the US Bankruptcy Court issued an order authorizing the sale of certain assets
of Old Sassy and made a number of ancillary orders in favour of the purchasers Sassy 14, LLC
and Angeicare Monitors Inc. (hereafter "New Sassy" and "Angelcare" respectively). The
purchasers, as asset purchasers, were assured in the approval orders that they would not inherit
any successor Liability for the obligations of Old Sassy and that the assets purchased would be
flee and clear of encumbrances. While the Transaction was corr►pleted on the same day (August
19, 2014), the purchasers were given a period of time to review the e.cecutory con#racts of(71d
Sassy and to assume only those executory contracts they chose to acquire. Tam only
paraphrasing the terms of orde~•s that I do not have fully before me, relying on the quotations
from them contained in the motion materials filed in the US Bankt~uptcy Court proceedings
described more fully below.
[8]
The approval orders contai~x te~~nis made — at least as far as they appear in the linnited
evidence before me —are not in the slightest way unusual or unknown to our own courts
operating in similar circumstances.
[9]
The Distribution Agreement b~t~veen Oid Sassy and the plaintiff was not one of the
eYecutoiy contracts that the purchasers detel~nined to acquire. Tn such circumstances, the
plaintiff has two obvious issues to deal with: a)the amount of its claim against Old Sassy for the
Ioss of the benefit of the Distribution Agreement; and b) the disposition of the inventory it had
acquired on the strength of the Distribution Agreement before Old Sassy effectively repudiated it
in the course of the bantcruptcy process. In the course of argument before me, the plaintiff
assured me that tha only practical business~interest that it was seeking to protect was its right to
realize upon the inventory that it had acquired under the Distribution Agreement before its
repudiation by Old Sassy. If that is so, the plaintiff appears to have chosen the rockiest path
available to resolve what apperus to me to he a fairly simple and straightforward issue.
Page 3 [10] On February 23, 2015, the plaintiffs started a first action (CV-1S-522544) agaizist Old
Sassy, the purchasers New Sassy and Angelcare as well as two other companies. The remedies
sought included damages for breach of the Distribution Agreement and conspiracy and
intentional interference ~vith contrach~al relationships as against both Oid Sassy and the
purchasers and an accounting of sates made by the purchasers since January 1, 201 S.
[11] This fi~•st action was apparently not foi7nally served an any panty, However, it appears to
have been communicated to the panties. I pause to note that it is not hard for me to appreciate
why a party to a purchase agreement approved by the United States Bankruptcy Court might find
this first statement of claim to have entailed something of a direct challenge to the orders made
by the United S#a#es Bankruptcy Court in approving the sale to them.
[12] The first action was reformulated by the plaintiff. On October• 6, 2015 the present
pz~oceeding was camtnenced by way of a new Statement of Ciaim. While certain refinements
were brought to the claim, the zevised claim raises many oft11e same issues as to the rights of the
purchasers to have acted in reliance upon the US bankruptcy process. The plaintiffs, to be faiz•,
softened some of their approach but much of the #henry of the initial claim was carried fo~tivard.
As well, the claim alleged independent toz~ts that are at least arguably separate and distinct from
the fact that New Sassy chose not to assume the Distribution Agreement as it was permitted to do
under the US Bankruptcy Court oz•dez•s governing its ptuchase of the business. Whether those
apparently independent claims can survive scrutiny as stand-alone, indepe~~dent tort claims and
not a eollaterai attack on the approval orders is not before me and I could express no view on as
slender an evidentiary foundation as is before nne now.
[13] I am advised that the second Statement of Claim was in fac# served upon Angelcare but
has not been served upon either Old Sassy or New Sassy. Old Sassy being in bankrup#cy
proceedings and subject to a general stay of proceedings can be safely assumed to remain mute
on the subject. What interest was advanced by adding.them as a party without moving to lift the
stay (even if one has not formatly been recognized here as of yet) is not apparent to ine.
[l~] The purchasers brought a motion for• injunctive and othez• relief before Kaplan J. in a
complaint and associated motion both dated December 15, 2015, The complaint alleged that the
present action (i.e. the second claim) has been brought by plaintiffs who had been pz•operly
sex-ved with notice of the proceedings before the US Bankruptcy Court in the matter of Old Sassy
and that this action has been b~•aught in violation of various of the count orders in that
proceeding. Other• claims, including for' payment of debts alleged #o be owing and an accounting
of sales made in Canada are made as well, Indeed, each side appe~'s to want the other to
account to it far sales of product in Canada in proceedings launched on tlaeir respective sides o~
the border. I expxess no views or• comments on that aspect of the complaint as it is neither
relevant nor• before nee.
X15] The plaintiff in this proceeding attaches very great sigzii£icance to one sentence contained
iz~ the motion attached to the complaint filed by the purchasers in the New Jersey proceeding. In
the motion, returnable on Decembe~~ 22, 2015, the pua•chasers sought an emergency injunction
bai~•ing the plaintiffs in this action from proceeding in Ontario on the basis that t~iey might
-Page4o#l~ei~vise be required to file responsive pleadings in Canada within short deadlines. At
paragrapI~ 8 of the motion, the purchasers (plaintiffs in that proceeding) indicated that they
"intend to file a motion to dismiss oz~ stay the Ca~~ada Action based upon the exclusive
ju~•isdiction of the Bankru}~tcy Court and the fact that the Sale Order extinguished any claim that
ISSI may have had against Plaintiffs dez~ived from the eYclusiai~. of the Dist~•ibution Agreement
from the Purchased Assets".
[16] This statement, they allege, amounted to an undertaking to bring sucl~.a motion that the
Canadian plaintiffs in this proceeding are entitled to ask me to enforce.
17] It the statement was made in the motion was a true undertaking, it had a short life span.
By December 18, 2015 tt~e puichasex•s' counsel had unequivocally stated to the plaintiff in this
action that they would not be bringing a motion in Ontario as originally indicated.
[I8] Before that email exchange, howevez•, the plaintiffs in this action decided that the only
proper• response to an anti-suit uijunction was another anti-suit injunction, This motion was
commenced on December 17, 201 S seeking an interim injunction precluding tl~e defendants from
seeking the injunction they were seeking iri the December 15 motion.
[19] The US motion was heard first. ~n Decennber 22, 2015 Kaplan J. issued a "temporary
restiai~~il~g order" -essentially an interim injunction -- enjoining further proceedings by the
plaintiff in this action. The application fox' an injunction came an fox• a hearing before Kaplan J,
yesterday (January 2D, 2016). Among other things brought to the attention of Kaplan J. in.tl~e
course of the parties bz~iefing Thai motion was coi7espondence from Ne~v Jersey counsel fog• the
Canadian plaintiff in this action fo~•cefully pleading before him the te~~rns of the original
"undertaking" contained in paragraph 8 of the purchaser's December 15 motion {quoted above).
[20] In other words, Kaplan J. had before him the precise issue -- enfoc•cement of the alleged
undertaking —that the plaintii'fis asking me to deal with today.
[21] I have had the advantage of reeding a transcript of the oral reasons given by Kaplan J, at
yesterday's hearing.
[22] Kaplan J, sought —wisely in my view — to poiu some oil on these troubled waters. He
advised both parties that he lead x•ead tl~e extensive back-and-forth in the materials placed before
him. All ar most of the same extensive coi7•es}~ondence has been laid before me today. He found
that he must e:~atnine whethez• he had subject-matter juz~isdiction and personal jurisdiction and —
if so —whether the defendants in that proceeding (the plaintiff in this one) ought to be restrained.
[23] As far as subject-matter jurisdiction is concerned, Kaplan J. found that as framed the
complaint befo~•e him 1•aised the question. To the extent that that the allegations ofthe plaintiff in
the Ontario action arise in whole or in substantial part from the application of orders made by
him —his court's subject-matter jurisdiction is surely engaged. I can find no reason to disagree
with that fairly straightforward conclusion. If the claim against the purchasers is tliaf they did
what the orders atitl~orized them to do, his orders are engaged. If the claim is that they went
further and did things beyond the scope of those o~•de~~s, dzffe~ernt conside~•ations tray a~•ise.
-Page 5
[24] As for personal jurisdiction, Kaplan J. found that the record before hizr~ was entirely
inadequate. Sensibly, Kaplan J. duected the parties to engage in a discovery process in order to
place before ium a better evidentiary record on personal jurisdiction.
[25] In the result, he continued the TRO/interim injunction to allow that discovery p~•ocess
time to be conducted. Applying a test not at aIi dissimilar to our own in terms of weighing the
balance of convenience he found that a temporary stay would have appear to have little impact
beyond deferring the costs of litigation in the Canadian proceeding and that the public policy in
favour of the finality of sale orders outweighed the potential harm to this defendant (i.e. the
Canadian plaintiffl.
[26] Finally, Kaplan J. concluded by noting that he was not directing his order at the Ontario
court out of respect for this court and hoped that this court would afford him a similar level of
respect.
[27] The purchasers appeared on a purely conditional basis for the purposes of this motion
only. I did not need to hear from them at the hearing in any event.
[28] The alleged undertaking made in paragraph 8 of the motion to Kaplan J. has become the
sole remaining foundation of the motion as bought before tne. The plaintiffs claim that this was
indeed an unde~~taking and should and must be enforced by me.
[29] I shall refrain from deciding whether paragraph 8 of the motion is an undertaking or
simply a revocable statement of intention. If the latter, it was withdrawn within 48 hours and
before any substantive order was made by the US Banluuptcy Court. More impoi~tantiy, the very
issue was quite explicitly raised before Kaplan J. who dete►-mined in a reasoned judgment to
maintain his TRO/interim injunction without requving the purchasers #o bring that motion.
While it is true that his reasons for decision do not e:cplicitly deal with the issue of the alleged
undertaking, Y have no doubt it was before him and was given consideration.
[30] There is simply no basis forme to treat a statement nnade to the United States Bankruptcy
Count in a motion made before it as an undertaking that I ought event to consider enforcing when
the exact same question has been raised before that same Court and resulted in an adverse
decision.
[31] Y have no reason to believe that the plaintiff in this proceeding will receive anything less
than due process before the United States count. There is no question in my mind that what
Kaplan J. described as matters of"core jurisdiction" before his court a~•e indeed matters that we
would regard as core to the jurisdiction of his court. If the plaintiffs in the Ontario action can
fairly demonstrate that their independent tort allegations are indeed independent and not merely a
thinly disguised collateral attack on the orders made by the Bankruptcy Court, I have no reason
to believe that Kaplan J. wilt fail to discern the difference.
[32] Our bankruptcy courts supezvise lic~uidatian proceedings ofgoing-concern businesses and
nnake similar common-sense orders similar to those made in the case of Old Sassy on a regular
basis. I recognize in the orders of the United States Bankruptcy Court shown to me jast the sort
-Page 6
of orders and autcom~s that I would e:~pect to see arising in similar circumstances before our
own courts exercising bankruptcy jurisdiction. I hasten to add that comity is not p~•emised upon
cou~~ts in differentjtuisdictions operating in identical fashion under identical rules.
[33] It goes without saying that our bankruptcy systems are sufficiently similar in approach
and nnethodalagy that numerous courts on both sides of our• very long border have ~•ecognized
that the appropriate apptoach to be is to assume that comity will be granted absent unusual
circumstances. The volume of trade -and common economic and social ties between our two
economies is a fundamental pillar of the prosperity enjoyed by both and those ties depend in no
small treasure upon the ability of our respective legal systems to iron out the minor ~iictions that
arise from time to tune in a common-sense manner and with respect ai d deference. Comity is
notjust good manners, it is a fundamental feature of our relationship.
[34] While it is taue teat no order recognizing the various orders made by the United States
Bankruptcy Cou~~t in the course of the proceedings involving Old Sassy has yet been sought on
this side of the border, such orders are contemplated (whe~•e needed) by our bankruptcy statutes
(c.f. Pant XIII of the Bankruptcy and 1'nsolvency Act, R,S.C. 1985, c. B-3 and Part IV of the
Cornpunies' C~~editofs Ar~•angef~rent Act, R.S.C. 1985, c. 36)and have long been gran#ed by our
Superior Courts in the esez~cise of our inherent jurisdiction on an ad hoc basis as well. Absent
unusual circumstances, I would e.cpect that a United States Bankruptcy Count requesting the aid
and assistance of our Court would be able comfortably to anticipate a favourable response ofthat
request.
[35] This motion is premature, There is no irreparable harm about to be visited upon the
plaintiff. The plaintiff has access to an entirely adequate and reasonable forum to air ifs
positions an subject-matter and personal jurisdiction. Kaplan J. is entitled to assume my cooperation and assistance when reasonably requested and his requests appear eminently sensible
and reasonable in this contest.
-Page 7 [36] As I expressed to the pai~ies in count, it seems that the true dispute between them
concerns the inventory acquired by the plaintiff under the Dist~•ibution Agreement prior to its
termination in the bat~cruptcy proceedings (which appears to have been on December 31, 2414).
The launching of cruise missiles by one side ox the other fi•otn their litigation bunkers seems a
much less efficient means of discussing ho~v that inventory ought to be liquidated than a
dispassionate and reasonable discussion among business people.
[37] This case is not the first nor will it be the last time such an issue has presentedztself in
bankruptcy pz•oceedings and anon-litigious way for the patties to stated down and resolve the
issue ought not to challenge sensible business people acting in a reasonable fashion.
[38]
The motion is accordingly dismissed. I shall snake no order as to costs for today.
Date: January 21,2016