B.C. – forum non conveniens required to address omission to extend agreement to arbitrate to merged corporation – #432

In O’Melveny & Myers LLP v. Tilt Holdings Inc., 2021 BCSC 124, Madam Justice Amy D. Francis applied the doctrine of forum non conveniens to stay B.C. litigation in favour of California litigation and, in doing so, recorded gaps in a law firm’s engagement letter.  The B.C. litigation involved disputed invoices totalling $3.2 million USD for significant M&A work undertaken by the law firm but without renegotiating an initial engagement letter (i) signed with only one (1) of four (4) corporations which merged into the eventual client and (ii) limited to a threatened litigation file.  The engagement letter contained an agreement to arbitrate which an arbitrator held did not apply to the merged client.  The evolution of the law firm’s relationship with the merged client suggests moments at which law firms and clients ought to revisit, reframe and extend initial engagement letters in order to carry forward the benefit of any initial agreement to arbitrate.

Plaintiff (“OMM”), a U.S. law firm, provided legal services to Defendant (“TILT”) and alleged that TILT owed a balance of $3.2 million USD.  Having lost a jurisdictional dispute in arbitration, OMM sued TILT in B.C. Supreme Court and TILT resisted.  Though TILT did not deny that the B.C. courts had territorial competence, it argued forum non conveniens, asking that the B.C. court stay its proceedings in favour of litigation in California.

Francis J.’s reasons address the doctrine of forum non conveniens and its application to the particular factual matrix involving significant legal services provided for a merged entity compromising four (4) initial corporations.  While Francis J.’s reasons provide a recent and thorough consideration of the doctrine and its various component elements, the reasons also record missed opportunities involving extension of a written agreement to arbitrate (i) signed with only one (1) of the merged entities prior to the merger and (ii) limited to a particular litigation matter identified in the engagement letter.   

The record before Francis J. disclosed the evolution of the relationship between the law firm and the one pre-merger entity and the post-merger entities.  A cannabis company operating in the legal marijuana market, TILT resulted from a 2018 merger of four (4) corporations: Baker Technologies Inc. (“Baker”), Sea Hunter Holdings Ltd., Briteside Holdings LLC and Sante Veritas Holdings Inc. The first three (3) were U.S. companies and the fourth was Canadian. 

After its June 2018 incorporation in Nevada, TILT was continued into B.C. in November 2018 and is currently listed on the Canadian Securities Exchange.  Though it is a B.C. company, TILT’s headquarters are located in Arizona.  With offices and operations throughout the U.S. including its bank accounts in Massachusetts, TILT has no operations or assets in B.C.

OMM’s and TILT’s working relationship began in May 2018 when GH, Baker’s co-founder and COO, approached BC, a partner at OMM, about retaining OMM to represent Baker in a threatened lawsuit. Baker signed a May 25, 2018 engagement letter with OMM. Francis J. noted the limited scope of that initial letter.

That letter sets out the terms of the retainer and is restricted to OMM’s representation of Baker in a single lawsuit. The Baker Engagement Letter is the only written retainer agreement between OMM and any of TILT’s predecessor companies. There has never been a written retainer agreement between TILT and OMM”.

As of June 2018, TILT discussed with BC the possibility of OMM acting for TILT with respect to planned mergers and acquisitions.  Francis J. sketched the scope of that planned M&A activity.

[11] TILT had a very aggressive acquisition plan based on their objective to be the first company to dominate all aspects of the cannabis market. OMM was prepared to service TILT’s considerable legal needs in this regard. Over time, OMM became the only law firm providing legal services to TILT with respect to mergers and acquisitions. Between July 2018 and July 2019, OMM represented TILT in 35 separate matters. Most of the legal work done by OMM for TILT was performed by lawyers in OMM’s Bay Area and Los Angeles offices”.

By late summer/early fall 2019, GH no longer worked at TILT.  OMM’s and TILT’s relationship deteriorated due to OMM’s non-payment of OMM’s invoices.

[14] On October 18, 2019, OMM initiated an arbitration proceeding against TILT in California to resolve the dispute about the Claimed Legal Fees, invoking a mandatory arbitration clause in the Baker Engagement Letter. While the Baker Engagement Letter did not on its face appear to apply to legal services provided by OMM to TILT, [BC] has deposed that he understood that the scope of the legal services contemplated in the Baker Engagement Letter had been expanded to include work OMM did for TILT. Therefore, [BC] believed that TILT was bound by the arbitration clause in the Baker Engagement Letter. TILT successfully applied to have the arbitration dismissed on the basis that the Baker Engagement letter did not bind TILT, and therefore TILT was not required to participate in mandatory arbitration”.

On March 19, 2020, OMM commenced litigation in B.C. to collect the fees and, on August 11, 2020, TILT commenced litigation in California against OMM and BC alleging professional negligence, breach of fiduciary duty, unjust enrichment and unfair competition.

urbitral notes – First, a renegotiated engagement letter may have offered the possibility to (i) consolidate into a single, potentially confidential forum, OMM’s fee dispute with TILT’s allegations made regarding the services provided and (ii eliminate the need to engage in different court litigation and the application of the doctrine of forum non conveniens.

Second, Francis J.’s reasons rightly focus on the forum non conveniens circumstances codified in section 11 of B.C.’s Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c 28 and her analysis merits the attention of arbitration counsel facing forum non conveniens arguments raised against their own attempts to remain in arbitration.

11(1) After considering the interests of the parties to a proceeding and the ends of justice, a court may decline to exercise its territorial competence in the proceeding on the ground that a court of another state is a more appropriate forum in which to hear the proceeding.

(2) A court, in deciding the question of whether it or a court outside British Columbia is the more appropriate forum in which to hear a proceeding, must consider the circumstances relevant to the proceeding, including

(a) the comparative convenience and expense for the parties to the proceeding and for their witnesses, in litigating in the court or in any alternative forum,

(b) the law to be applied to issues in the proceeding,

(c) the desirability of avoiding multiplicity of legal proceedings,

(d) the desirability of avoiding conflicting decisions in different courts,

(e) the enforcement of an eventual judgment, and

(f) the fair and efficient working of the Canadian legal system as a whole”.