



COURT OF APPEAL FOR ONTARIO

CITATION: United States v. Yemec, 2014 ONCA 274

DATE: 20140408

DOCKET: C57021 & C57472

Sharpe, Watt and Benotto JJ.A.

AND BETWEEN

C57021

The United States of America and United States
    Federal Trade Commission

Plaintiffs (Appellants)

and

George Michael Yemec, Anita Fern Rapp, Julia F.
    Bungaro, World Media Brokers Inc., 624654 Ontario Limited, 637736 Ontario
    Limited, 537721 Ontario Inc., Express Marketing Services Ltd., 331216 B.C.
    Ltd., 364058 B.c. Ltd., 1306051 Ontario Inc., 377414 Ontario Inc., O/A World
    Media Brokers, Dial-A-Million Inc., Telegroup Inc. O/A Market Monitor, 747321
    Ontario Inc., Grant Print Inc., 599026 Ontario Inc., Jackpots & Prizes, Nelson
    Bunting and Express Purchaser Services Ltd.

Defendants (Respondents)

AND BETWEEN

C57472

The United States of America and United States
    Federal Trade Commission

Plaintiffs (Appellants)

and

George Michael Yemec, Anita Fern Rapp, Steven
    Lawrence Rapp, Paul Churchill Teskey, Jean-Paul C. Teskey, Julia F. Bungaro,
    William Dean Temple, Jr., Yvonne Buckingham, Florence Mary Teskey, World Media
    Brokers Inc., 1165107 Ontario Inc., Faby Games Inc., 624654 Ontario Limited,
    637736 Ontario Limited, 537721 Ontario Inc., Express Marketing Services Ltd.,
    364058 B.C. Ltd., 331216 B.C. Ltd., Intermarketing Services, Inc., Cash &
    Prizes, Inc., Cash & Prizes Inc., Taras Voloshchuk (a.k.a. Terry
    Wokoschuk). Canadian Subscription Services, 1306051 Ontario Inc., 377414
    Ontario Inc., O/A World Media Brokers, Dial-A-Million Inc., Telegroup Inc., O.A
    Market Monitor, 747321 Ontario Inc., Grant Print Inc., Jackpots & Prizes,
    Nelson Bunting, 599026 Ontario Inc. and Express Purchase Services Ltd.

Defendants (Respondents)

Malcolm Ruby and Zoe Paliare, for the appellants

David Wires and Krista Bulmer, for the respondents

Heard: March 19, 2014

On appeal from the orders of Justice Edward Belobaba of
    the Superior Court of Justice, dated April 2, 2013 and July 2, 2013.

By the Court:

[1]

The appellants obtained two
ex parte
injunctions against the
    respondents. They provided an undertaking to compensate the respondents for
    damages if the injunctions were found to have been wrongfully granted.  The injunctions
    were ultimately set aside, and pursuant to the undertaking, an inquiry with
    respect to damages was held.  The inquiry judge awarded damages, legal fees to
    be held in trust for third parties and a charging order to cover the legal fees
    of the respondents counsel. The USA appeals the damages award and the charging
    order.

A.

History of the Action

[2]

The respondents operated telemarketing businesses in Canada.  In October
    2002, the appellants alleged that the respondents were targeting American
    seniors and fraudulently demanding fees in their sale of Canadian lottery
    tickets. The USA applied for and received a
Mareva
injunction and a
Anton
    Piller
order. The motion was heard
ex parte
based on misleading
    affidavit evidence. The orders, dated October 3, 2002, included the following
    undertaking on the part of the appellants, which tracked the language of rule 40.03
    of the
Rules of Civil Procedure
, R.R.O. 1990, Regulation 194:

To abide by any Order concerning damages that the Court may
    make if it ultimately appears that the granting of the Order has caused damage
    to the Defendants for which the Plaintiff out to compensate the Defendants.

[3]

The
ex parte
orders were set aside on October 3, 2003.  The
    appellants appealed. The appeal was dismissed by the Divisional Court on March
    24, 2005. A damage inquiry was held in 2012.

(1)

Damages Inquiry

[4]

The damages inquiry was heard over the course of 15 days.  The claimants
    George Yemec, Anita Rapp, Julia Bungaro and Nelson Bunting, along with various
    corporate claimants, claimed tens of millions of dollars.  The inquiry judge
    dismissed most of the claims on the basis that almost all of the damages claimed
    had not been caused by the wrongful injunctions.  Instead, the inquiry judge
    found that the damages were caused by other events that pre-dated the
    injunctions, including a Temporary Restraining Order (TRO) issued by a court in
    Chicago in the context of a civil proceeding brought by the United States
    Federal Trade Commission (FTC) against several of the respondents in the
    United States.  The TRO had effectively shut down the businesses.

[5]

However, the inquiry judge did award a total of $954,576 in damages
    stemming from the unlawful injunctions, which included the following:

·

$1,000 to Mr. Bunting for the seizure of his cellphone during a
    search of the respondents business premises;

·

$250,000 to Mr. Yemec for loss of reasonable time to transition
    to a new business;

·

Legal fees to be paid in trust for the following lawyers:

o

$52,560 for Goodmans LLP;

o

$17,228 for Thomas Kent;

o

$3,788 for Wires Jolley LLP;

o

$10,000 for Martin Evans.

·

Other legal fees to the defendants:

o

$25,000 for topping up the costs of setting aside the
ex
    parte
order;

o

$595,000 for costs of the inquiry and the related appeals.

[6]

The inquiry judge also issued a charging order, granting Wires Jolley LLP
    first charge on $871,000 for the payment of any unpaid fees and expenses in
    relation to setting aside the
ex parte
orders and the costs of
    obtaining and conducting the damages inquiry.

B.

The Appeal

[7]

The appellants appeal the damages awards and the charging order.  They
    submit that:

(1)

The inquiry judge erred in awarding damages to Mr. Bunting for loss of
    his cellphone because he was not a defendant at the time the cellphone was
    seized.

(2)

Mr. Yemec should not have received damages for loss of transition time
    because no claim was advanced under that head at the inquiry, the inferences
    drawn by the inquiry judge were not clear and Yemecs businesses were illegal.

(3)

Damages should not have been awarded to third party law firms because
    the injunction did not extend to them.

(4)

The costs awarded for the inquiry were disproportionate to the amount
    actually awarded particularly in light of the amount claimed, and top-up costs
    were not appropriate because the respondents were already awarded costs by the
    Divisional Court when the appeal was heard.

(5)

A charging order is only appropriate when a client derives a net benefit
    from the solicitors work.  The appellants argue that, in this case, the
    respondents remain liable for a $19 million judgment rendered against them in
    the parallel American proceedings and deemed to be enforceable in Canada by
    this court. They submit that the Canadian and American actions were one
    proceeding and thus there was no net benefit to the respondents from the damage
    inquiry.

C.

Analysis

[8]

Before dealing with the specific issues, we make two preliminary
    observations.

[9]

First, the starting point for this inquiry is that the appellants were
    found to have obtained the drastic remedies of an
Anton Piller
order and
    a
Mareva
injunction on an
ex parte
application based on
    misleading affidavit evidence.

[10]

Second,
    the errors alleged by the appellants are fact-based.  As we will explain, it is
    our view that the inquiry judge carefully considered the legal tests,
    articulated the facts and drew available inferences.

1. Bunting cell phone

[11]

Mr.
    Buntings cellphone was left at premises that became the subject of the
    seizures pursuant to the
Anton Piller
order.  Although he was not a
    defendant at the time the injunctions were granted, he became a defendant and,
    in our view, as a defendant, he is entitled to be compensated pursuant to the
    undertaking.  While the damages awarded appear to us to be generous, there was
    some evidence to support the award and we decline to interfere.

2. Loss of transition time

[12]

Mr.
    Yemecs loss of transition time arose from the fact that he was unable to
    pursue any business opportunity because the injunctions froze his assets and
    records. Although the inquiry judge gave this head of damages an unusual label
    that was not mentioned at the inquiry, there was ample evidence of the drastic
    impact of the injunction upon Yemec and the award was well within the
    parameters of the case that was presented.

[13]

The
    inquiry judge found, at para. 35, that the injunction froze Yemecs assets and
    bank accounts, both current and future; it was not set aside until one year
    later; and the appeal effectively extended the period during which Yemec could
    not realistically raise money for a new venture for another year and a half.

[14]

We
    do not agree that it should be assumed that because of the illegality of
    Yemecs past business, he would not have been able to launch a legal venture.
    In our view, the inquiry judge was entitled to accept the evidence and draw the
    inferences that he did in making this award.

3. Legal Fees in Trust

[15]

We
    do not accept the appellants characterization of the award for legal fees to
    be paid in trust as an award to third party law firms. The amounts awarded
    corresponded to legal fees the respondents had incurred in dealing with the
    improperly obtained injunctions. One law firm had obtained a judgment for the
    fees and other fees remained outstanding to be dealt with at or after the
    inquiry. The trust provision in the award simply ensured that the fees would be
    paid to the law firms.

4. Costs of the Damages Inquiry

[16]

It
    is not an error of law to award legal fees as damages on an inquiry. (See:
Stonehocker
    v. King
1998 CanLII 7187 (CA)). The inquiry judge was entitled to require
    the appellants to pay for all the costs associated with setting aside the
    wrongly obtained orders and the costs of the damages inquiry. While the amount
    awarded was substantial, we cannot say that it was unreasonable when considered
    in the entire context of this litigation.

5. Charging Order

[17]

The
    inquiry judge did not err in granting the charging order. The $19 million
    judgment asserted by the appellants was granted to a different party in a
    different proceeding and did not preclude the charging order in favour of the
    solicitors who got the improperly obtained injunctions set aside and obtained
    and conducted the damages inquiry. We agree with the inquiry judges reasons
    that the work done by the lawyers in the Canadian proceeding was separate from
    the American proceeding and that the American damages award ought not to
    deprive the solicitors of their right to a charging order.

D.

DISPOSITION

[18]

The
    appeal is dismissed.  Costs to the respondent in the amount of $37,500 ($7500
    for the charging order appeal and $30,000 for the damages appeal) inclusive of
    disbursements and applicable taxes.

Robert J. Sharpe
    J.A.

David Watt J.A.

M.L. Benotto J.A.

Released: April 08, 2014


