In a recent decision of the Supreme Court of the State of Nevada (Court), the Court upheld an order made by the Nevada District Court recognizing and enforcing a judgment of the British Columbia Supreme Court arising out of enforcement proceedings by the British Columbia Securities Commission (BCSC) against Michael Lathigee (Lathigee).

After a contested hearing, the BCSC found that Lathigee had perpetrated a fraud under section 57(b) of the B.C. Securities Act, and ordered sanctions including pursuant to section 161(1)(g) that he disgorge $21.7 million in ill gotten gains. The BCSC registered its order with the British Columbia Supreme Court, which had the effect of making the order enforceable as an order of that court. Lathigee's appeal to the British Columbia Court of Appeal failed. (See Poonian v BCSC, 2017 BCCA 207 discussed in our earlier article).

Lathigee subsequently relocated to Nevada, without having satisfied the disgorgement order.

The BCSC sought to have the disgorgement portion of the judgment enforced under the Nevada Revised Statutes (NRS) 17.750(1), which mandates recognition of a foreign-country judgment to the extent that it is not a "fine or other penalty", or alternatively, simply as a matter of comity.1

In its decision, the Court addressed two central issues.  First, it clarified the distinction between an equitable award as opposed to a penalty in the context of enforcing Canadian judgments in the United States. Second, it reinforced the principles of comity when enforcing extra-jurisdictional judgments.

The Court's Analysis

In the absence of a statutory definition of a "fine or other penalty", the Court looked to its common law for guidance in ascertaining that BC's disgorgement judgment was "neither punitive nor compensatory." First, the Court noted that the award was not based on a schedule of fines and penalties. Instead, the amount constituted the exact sum that was fraudulently obtained from Canadian investors.2 Next, the Court observed that the BCSC is not benefiting from the award and is required to disburse the entire sum to the victims of the fraud.3 The purpose of the award was therefore designed to redress an unjust enrichment and achieve restitution. With this in mind, the Court found that the disgorgement order did not constitute a penalty but rather fell "squarely within the heartland of equity."4

Further, even if the disgorgement judgment had fallen outside the scope of NRS 17.750(1) (the mandatory recognition provision), the Court held that the judgment should nonetheless be recognized as a matter of comity. The Court accepted that the doctrine of comity may be "appropriately invoked according to the sound discretion of the court acting without obligation" and, importantly, highlighted the mutual policy of promoting cooperation between Canadian and American courts. In this regard, the Court noted that Canadian securities commissions and the U.S. Securities and Exchange Commission (SEC) often work together, "since the proximity and relations of the two countries make it easy for fraud to move between them." In this context, the Court observed that "Canadian courts have upheld SEC disgorgement judgments repeatedly," and reciprocally noted that "Canadian judgments have long been viewed as cognizable in courts of the United States."5

Takeaways

The Lathigee decision will assist Canadian securities regulators in enforcing their disgorgement orders south of the border, and potentially in other jurisdictions. In particular, the decision affirms the strong tendency towards mutual cooperation between Canadian and American courts in the context of securities regulation, and suggests that entrenched principles of comity may predispose American courts toward recognizing judgments of Canadian securities commission.

The author would like to thank Tiana Corovic for her contributions.

Footnotes

1 Lathigee v British Columbia Securities Comm'n at page 3.

2 Lathigee v British Columbia Securities Comm'n at page 7-8.

3 Lathigee v British Columbia Securities Comm'n at page 8.

4 Lathigee v British Columbia Securities Comm'n at page 10.

5 Lathigee v British Columbia Securities Comm'n at page 11-13.

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