Ontario judge dismisses Catalyst Capital’s lawsuits

An Ontario judge has dismissed Catalyst Capital Group Inc.’s lawsuits against seven parties, including The Wall Street Journal and rival private equity firm West Face Capital Inc., citing “ethically dubious” behaviour by Catalyst and actions that “strategically tried to silence” defendants.

In his ruling on an application to have the lawsuits dismissed, Justice Thomas McEwen of the Ontario Superior Court also dismissed Catalyst’s attempt to stop a counter defamation lawsuit filed by West Face, allowing that to proceed.

The multipart ruling is the latest in a sevenyear saga that started with a dispute over Wind Mobile Corp. Both Catalyst and West Face had tried to acquire the wireless telecom company, but West Face and some investment partners were the successful bidders, and sold Wind a few years later to realize a $1.3-billion profit.

Through the years since, Catalyst has launched multiple lawsuits against a variety of defendants. Catalyst alleged the defendants were involved in conspiratorial and defamatory activities, including The Wall Street Journal, and a group the company called the “Wolfpack.” Catalyst founder Newton Glassman in court documents defined the latter as rivals, short-sellers and others who joined forces to damage Catalyst’s reputation, as well as the reputation of Callidus Capital Corp., which is one of Catalyst’s portfolio companies.

The court heard that Catalyst has gone to extreme measures to influence legal proceedings, including an attempted sting on a retired Ontario judge who had dismissed one of the company’s Wind-related lawsuits.

Documents filed in the dismissal application alleged that Mr. Glassman personally devised a bonus scheme to reward Black Cube, an Israeli private investigation firm, for a “wish list of evidence” that would undermine the integrity of the retired judge, among other things, at a time when Catalyst was appealing his decision. The documents alleged the scheme, part of an effort known as Project Maple Tree, provided for payments up to US$11million for damaging information.

This track record weighed heavily in Justice McEwen’s decision to dismiss multiple lawsuits. “Even if the Catalyst parties have indeed suffered some form of harm, the public has little interest in permitting parties with a history of relying on uncredible private investigators to advance multiple lawsuits and extra-judicial ‘stings’ to proceed with yet another claim,” he wrote in his decision.

In an e-mailed statement, Catalyst said it is “disappointed” with the ruling and is considering its options for appeal.

“In its decision, the court recognized the strength of our conspiracy case against many of the defendants and the resulting harm that was caused to Catalyst and Callidus,” the statement said. “However, Catalyst was then precluded from bringing these claims to trial. Our conspiracy claims would be amongst the first such claims in Canada to address allegations of ‘short and distort’ conduct.”

Catalyst’s lawsuits have had many tentacles, and a number have already been dismissed. The defendants in the lawsuits affected by the latest ruling had asked the judge to rule on whether they could use “anti-SLAPP” provisions to have them dismissed.

In strategic lawsuits against public participation (SLAPPs), plaintiffs use litigation to limit the expression of criticism from others. AntiSLAPP laws allow judges to dismiss such lawsuits at an early stage, but certain criteria must be met, such as the requirement that the defendants prove the issue is in the public interest.

In his decision, Justice McEwen ruled the defendants in Catalyst’s lawsuits can use the antiSLAPP provision, which means the lawsuits have been dismissed.

West Face, meanwhile, had countersued Catalyst and alleged defamation, prompting Catalyst to use the “anti-SLAPP” provisions in its own defence. Justice McEwen ruled that Catalyst cannot use these provisions, and the countersuit will proceed.

Justice McEwen listened to five days of arguments in May, and, before the motions, more than 30,000 documents were filed in court, and more than 9,000 pages of affidavits and exhibits. After his review, the judge found that some of Catalyst’s allegations of defamation had substantial merit, as did some of its allegations of collusion by the Wolfpack, which included copious meetings, phone calls and text messages between some of its members.

However, he decided that the public interest trumped any such behaviour that might be proven in a trial.

“Even if there are some legitimate aspects to both the defamation and Wolfpack actions, in light of the Catalyst parties’ litigation history, as well as their history of executing Project Maple Tree, it is appropriate to infer that the Catalyst parties’ present claims are underlined by a punitive or retributory purpose that relates to their failure to acquire Wind,” the judge wrote.

“To be clear, my reasons should not be viewed as precluding the Catalyst parties from initiating future lawsuits,” Justice McEwen added. “However, where litigants such as the Catalyst parties engage in repetitive, unsuccessful, and protracted litigation and, in addition, engage ethically dubious attacks on private citizens and former members of the judiciary, they run the risk of having their lawsuit dismissed. That is exactly what I am doing here.”