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Supreme Court Denies Drabinsky $40 Million Appeal

Garth Drabinsky and Myron Gottlieb got more bad news this morning as the Supreme Court of Canada announcedit would not hear their appeal of a previous court decision ordering the pair to pay $36.6 million to former Livent note-holders. We were always optimistic that we would get this result, but you can never tell what will happen at the Supreme Court, said Jasmine Akbarali, a lawyer at Lerners LLP, a Toronto-based law firm that has been handling the case.
The court did not release reasons for the decision, but awarded costs to lawyers representing investors who bought about US$125 million in Livent debt in the fall of 1997. The notes were made virtually worthless after the company collapsed into bankruptcy in 1998 amid allegations Drabinsky and Gottlieb had manipulated the company’s financials. Drabinsky and Gottliebs criminal fraud trial wrapped up in Toronto last month and a verdict in the case will be handed down on March 24th.
The fact the Supreme Court refused to hear the case will not have any impact the criminal case or any outstanding lawsuit relating to the collapse of Livent, said David Roebuck, a lawyer with Toronto-based Heenan Blaikie, who is representing Drabinsky in several civil lawsuits as well as the criminal case. “The Court declines to take cases for many reasons that are unrelated to the merits of the particular case,” he said. *
The Supreme Court decision represents the end of the road for a casethat has been winding through courts in the U.S. and Canada for more than five years. Back in 2004, a New York judge sided with plaintiffs in the case and found that Drabinsky and Gottlieb had failed to perform the due diligence required. A U.S. appeal court upheld the ruling a year later and then things get tricky.
Exactly a year after the appeal, Drabinsky and Gottlieb filed a motion to vary the judgment citing evidence gathered during the lengthy preliminary into criminal fraud charges that the two men currently face in Canada. In that appeal, Drabinsky and Gottlieb blamed the alleged manipulation on other senior members of Livents accounting staff. The judge in the case remained unimpressed and dismissed the motion.
The case was unsuccessfully appealed again last year after U.S. lawyers successfully moved to have the judgment filed in Ontario so they could begin to collect their award. In that case, the court of appeal disagreed with Drabinsky and Gottliebs argument that their ability to mount a defence in the U.S. civil lawsuit was unduly hampered by the criminal charges they were also fighting in Canada.
Interest and costs continue to build on the original judgmentwhich now stands at more than $40 million, says Akbarali. Drabinsky and Gottlieb will soon be forced to undergo a debtor examination where lawyers will question the executives under oath about any income or assets they hold. Lawyers will then move to either garnish those wages or seize assets in Canada or abroad, says Akbarali.
The loss is just the latest in a series of legal setbacks for the former Livent executives. Last month, the Ontario Court of Appeal upheld the dismissal of a lawsuitGottlieb filed against Stikeman Elliota prominent Toronto law firm representing Livent in numerous other civil cases. In his lawsuit, Gottlieb had accused the firm of conspiring to frame him for accounting crimes he says he did not commit.
In the meantime, other civil actions related to the collapse of Livent are moving along. Late last month the Ontario Superior Court orderedseveral Deloitte and Touche accountants who worked on the books of the theatre company to order questions and produce documents relating to a $450-million civil case brought by the receiver handling the Livent bankruptcy. Livent alleges Deloitte and Touche was negligent in failing to detect the alleged manipulations on Livents books.
Deloitte and Touche is currently
appealinga 2007 ruling by the Institute of Chartered Accountants of Ontario that found three senior Deloitte accountants who worked on the Livent account had violated the Institutes professional standards. A decision on the appeal is expected by the end of this month.**
* This post was updated to include comments from Drabinsky’s lawyer David Roebuck.
** This post was updated to include comments from the ICAO.