I.E. Liquidation, Inc. v. Litostroj Hydro, Inc. (In re I.E. Liquidation, Inc.)

IN RE: I.E. LIQUIDATION, INC., Debtor.

I.E. LIQUIDATION, INC., Plaintiff, v. LITOSTROJ HYDRO, INC., Defendant.

CASE NO. 06-62179

ADV. NO. 08-6077

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

April 1, 2015

CHAPTER 7

JUDGE RUSS KENDIG

MEMORANDUM OF OPINION (NOT INTENDED FOR PUBLICATION)

Before the court is I.E. Liquidation, Inc.'s ("Debtor") motion to reinstate various counts against Litostroj Hydro, Inc. ("Litostroj") which were previously dismissed by this court in an opinion dated March 18, 2009 ("2009 Opinion") based on a forum selection clause and the legal doctrine of forum non conveniens, allowing the claims to instead be litigated in Canada. This court placed a condition on the dismissal of Debtor's claims, reserving the right to resume adjudication if "at any point it appears that a final order cannot or will not be rendered in the courts of Quebec within four years from the date of [the 2009 Opinion]." As of the issuance of this opinion, over four years have passed and it appears likely that a final resolution in Canada remains years away. Therefore, Debtor moves this court to reclaim jurisdiction and hold a trial assoon as possible. Litostroj disagrees, raising a number of arguments as to why litigation in Quebec is both prudent and required by law.

The court has jurisdiction of this case under 28 U.S.C. § 1334 and the general order of reference dated April 4, 2012. In accordance with 28 U.S.C. § 1409, venue in this district and division is proper. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O).

This opinion is not intended for publication or citation. The availability of this opinion, in electronic or printed form, is not the result of a direct submission by the court.

Factual and Procedural Background

Ideal Electric Company ("Ideal"), was a business headquartered in Mansfield, Ohio primarily involved in the manufacturer of medium power generators for gas, steam, and hydroelectric turbines. Ideal was a successful company for over one hundred years, but various economic forces pushed the company into bankruptcy in 2006. I.E. Liquidation, Inc. is the remaining entity that holds Ideal's litigation rights. Litostroj is a Canadian company involved in the design and implementation of hydroelectric power solutions.

In early 2005, Hydro Quebec, a Canadian utility company, solicited bids to build and equip two hydro-electric energy facilities. Hydro Canada selected Litostroj's bid, but required the generators in the new facilities to be provided by Ideal. At this point, Litostroj and Ideal entered into a set of contracts with Ideal providing twelve generators in exchange for payments of approximately $17,000,000.00. The payments were to be made in various phases, with $1.6 million for the initial technical drawings, $13.9 million for the construction and testing of the generators, and $1.8 million for installation and other various expenses. According to Debtor, Litostroj's payments were often delayed or never made, placing Ideal under significant financial strain. Debtor argues that the costs associated with the construction of the generators, combined with Litostroj's failure to make contract payments, were a major factor in Ideal's bankruptcy.

On June 20, 2008, Debtor filed an adversary proceeding against Litostroj in the United States Bankruptcy Court for the Northern District of Ohio, alleging breach of contract claims seeking damages in excess of $11,000,000.00. Debtor also alleges Litostroj violated the implied covenant of good faith and fair dealing, stating that Litostroj intentionally sabotaged Ideal so a Litostroj-owned company would be awarded the generator construction contracts and be able to keep the associated profits. Therefore, Debtor believes any profits Litostroj produces from the generator construction originally entrusted to Ideal are a form of unjust enrichment. Collectively, the court will refer to these claims as the "Hydro Case." Debtor also filed the "Besy Case" against Litostroj, alleging claims similar to the Hydro Case, but associated with the construction and delivery of a $1,200,000.00 generator on an unrelated project. While the Besy Case was discussed within the 2009 Opinion, Debtor and Litostroj have since agreed to a settlement.

Shortly after Debtor initiated the Hydro Case in the United States, Litostroj filed a motion seeking to change the litigation forum to Canada. Litostroj based its motion on a forum selection clause and the legal doctrine of forum non conveniens. The 2009 Opinion determined that a valid forum selection clause existed between Litostroj and Debtor, and therefore adjudication inQuebec was appropriate. The court also relied on forum non conveniens, a legal doctrine that balances the public and private interests furthered or harmed by litigation in one forum over another. While the court found some factors weighing in favor of litigation in Ohio, and others favoring Quebec, the court's main focus was on the multilingual nature of the litigation. Residents and businesses in Quebec often communicate and conduct business in French and English. Consequently, significant portions of the documentary evidence necessary for a trial is written in French, and many witnesses would testify in French. The courts of Quebec are multilingual, allowing documentation and testimony to be introduced in either language. While certain aspects of a trial may be easier in the United States, the inconvenience and expenses associated with a bilingual trial is greatly reduced in Canada. After evaluating all of the factors, the 2009 Opinion determined that litigation in Canada was appropriate.

The court dismissed Debtor's case to effectuate the transfer between Ohio and Quebec. However, to protect Debtor and Debtor's creditors, the 2009 Opinion placed the following conditions on the court's dismissal:

(1) [Litostroj] will submit to the service of process and waive any jurisdictional defenses in the appropriate Montreal forum;

(2) In the Montreal proceeding, [Litostroj] will waive any statute of limitations defense or similar defense whether arising under the laws of Ohio, Quebec, or another source;

(3) [Litostroj] agrees to allow this Court to resume adjudication of this matter if any judgments obtained against it by [Debtor] is not properly satisfied, or if the courts of Quebec for any reason find they lack jurisdiction over this matter;

(4) [Litostroj] agrees to allow this Court to resume adjudication of this matter and permit [Debtor] to amend its complaint here to reinstate those counts dismissed by these orders if at any point it appears that a final order cannot or will not be rendered in the courts of Quebec within four years from the date of the order to be entered contemporaneously herewith

I.E. Liquidation v. Litostroj Hydro, Inc. (In re I.E. Liquidation), 2009 WL 1586706, at *15 (Bankr. N.D. Ohio 2009). The court entered an associated order reiterating the above conditions. The 2009 Opinion also noted that condition (4) was not automatic, but that the court would revisit the "balance of public and private interest factors" if the court's assumption that litigation in Canada would not be significantly slower than litigation in the United States proved untrue. Id. This opinion will refer to condition (4) as the "Timing Condition."

After the 2009 Opinion, Debtor filed the same claims in the courts of Quebec, Canada on July 28, 2010. Canadian trial practice is substantially different than the United States, often moving at a slower pace. For example, before obtaining a trial date, all parties must assert that they are ready for trial. After making this determination, a Canadian judge is assigned to the case, a pretrial hearing is held, and a trial date is set. Debtor and Litostroj each filed notice that they were ready for trial on February 19, 2014, but a pretrial hearing was not held until October 7, 2014, over seven months later. At the pretrial hearing, a trial date was set for late 2018. Further delaying final resolution, any determination by a Canadian trial court is subject to appeal.In summary, as of the issuance of this opinion, approximately five years have passed since the 2009 Opinion, but a final judgment in Canada remains at least an additional five years away.

Legal Arguments

The court held a hearing in this case on January 6, 2015, where Debtor and Litostroj presented their arguments pertaining to the proper litigation forum. The parties raised two threshold issues, either of which would alleviate the need for the court to weigh the various factors favoring litigation in either the United States or Canada. In an agreed scheduling order, the court outlined the two threshold issues as follows:

A. Whether the [Timing Condition] . . . was limited solely to counts dismissed under the forum non conveniens doctrine and the case must remain in Quebec for adjudication because the counts were also dismissed pursuant to a forum selection clause;

B. Whether, because the [2009 Opinion] stated that Litostroj agreed to the [Timing Condition] and Litostroj did not appeal the [2009 Opinion], Litostroj is prohibited or barred in whole or in part from contesting reinstatement of the dismissed counts and resumption of adjudication of those counts in this Court by the doctrine or res judicata.

Regarding the first issue, Litostroj argues that based on the text of the 2009 Opinion the Timing Condition only applies to claims dismissed under forum non conveniens. Therefore, because the 2009 Opinion dismissed Debtor's claims based on a valid forum selection clause and forum non conveniens, the court has already conclusively determined that the forum selection clause requires litigation in Canada. Debtor disputes Litostroj's reading of the 2009 Opinion, instead arguing that the Timing Condition is applicable to each claim dismissed by the 2009 Opinion, no matter the underlying reasoning.

Second, Debtor argues that the 2009 Opinion...