July 19, 2019 Practice Points

Canadian Appeal Court Affirms “Thanks-But-No Thanks” Approach to Discovery of U.S. Residents in Canadian Class Action

By Cheryl Woodin and Emrys Davis

On April 16, 2018, a Canadian appeal court upheld a prohibition on Canadian plaintiffs from obtaining discovery from a U.S. resident under section 1782 of Title 28 of the United States Code, See Mancinelli v. RBC, 2018 ONSC 1844 (Div. Ct.).

In Mancinelli, the plaintiffs alleged that the defendants conspired to fix prices in the foreign exchange market. Certain currency traders employed by the defendants were alleged to have coordinated their trading strategies and exchanged key confidential information with each other using electronic chatrooms hosted by Bloomberg LP. The plaintiffs commenced a class action in Ontario, Canada. Before moving to certify the class, the plaintiffs sought discovery from Bloomberg in the United States, including production of transcripts of the relevant chatroom conversations. Had Bloomberg been a resident of Ontario, the province’s Rules of Civil Procedure would require the plaintiffs to obtain an order from the court authorizing the non-party discovery. But, believing that such an order was unnecessary given that Bloomberg resided in the United States, the plaintiffs moved for and obtained an ex parte order under section 1782. That section permits a U.S. court to order a U.S. resident to provide discovery for use in a foreign proceeding.  

Upon learning of the order made against Bloomberg, the defendants moved before Justice Perell, the case management judge in the Ontario class action, See Mancinelli v Royal Bank of Canada, 2017 ONSC 87. They sought an order requiring the plaintiffs to seek and obtain authorization from the Ontario court, before taking any step in furtherance of the section 1782 order against Bloomberg. In other words, the defendants sought the same result that would have resulted had Bloomberg resided in Ontario. That is, prior judicial authorization by the Ontario court before discovery directed to a non-party.

Justice Perell granted the order sought by the defendants. He held that the plaintiffs had circumvented the rules that govern discovery of non-parties in Ontario, and in class actions in particular. Not only had plaintiffs not sought prior judicial approval before seeking discovery from a non-party, they also had sought discovery before certification, when such discovery is not typically permitted in Ontario class actions (in contrast to the situation in the United States). While these findings were sufficient to find for the defendants, Justice Perell also held that the plaintiffs’ ex parte application to the U.S. court was deficient in that it did not disclose that this matter was before a case management judge in Ontario with broad powers, nor the significant differences between Ontario and U.S. class action discovery processes, particularly as they relate to discovery of non-parties. Justice Perell doubted that the U.S. court would have granted the §1782 order had the plaintiffs properly informed it of these factors. Justice Perell stated that he appreciated the U.S. court’s willingness to assist an Ontario proceeding but that such assistance was premature, making this a “thanks-but-no-thanks situation until after [the Ontario] court has had an opportunity to consider whether it wishes to seek the American court’s assistance.” See Mancinelli v Royal Bank of Canada, 2017 ONSC 87 at para. 60.

On appeal, the Ontario Divisional Court agreed with Justice Perell. The three-judge panel highlighted that U.S. courts will not issue a section 1782 order if the foreign court is not receptive to it, and in this instance the U.S. court had not been informed that such compelled discovery was not authorized under Ontario’s Rules or by the case management judge. The panel also rejected the plaintiffs’ arguments that the order precluded them from gathering evidence. The judges upheld the distinction that the prohibition is only against the plaintiffs from using section 1782 to compel discovery and that they were still free to obtain evidence from voluntary disclosure.

The Mancinelli decisions are the first Canadian cases to prohibit plaintiffs from obtaining discovery from non-parties in the United States under section 1782. Going forward, U.S. attorneys whose clients receive a section 1782 order related to a Canadian proceeding will want to review these decisions and determine whether the U.S. court was properly informed of Canadian discovery procedure.

 

Cheryl Woodin and Emrys Davis are with Bennett Jones LLP in Toronto, Ontario.


Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).