Livent Sideshow???

Reporters packed into a Toronto courtroom yesterday for the first day of the criminal fraud trial of Garth Darbinsky and Myron Gottlieb. At the same time, civil lawyers representing the two former senior executives of Livent Inc. were in a much emptier courtroom just down the street trying to quash a court ruling that could force the pair to pay more than US$36 million to investors who were allegedly defrauded by Livent.

The case, being heard by Ontario Court of Appeal Justice Susan Lang, Justice David Watt and Justice Gloria Epstein, stems from a 2005 judgment by a New York judge who ordered Drabinsky and Gottlieb to pay US$23 million plus interest (now totaling US$36.5 million) to holders of Livent's investment notes who lost money when the company collapsed in 1998. Drabinsky and Gottlieb unsuccessfully appealed the ruling in the U.S. and are now appealing the findings of Ontario Justice Herman Siegel who ruled last year that the judgment could be enforced in Canada.

Drabinsky and Gottlieb's lawyers argue the judgment should be thrown out since the criminal charges filed against the men made it impossible for them to adequately defend themselves in the U.S. The criminal charges filed in the wake of the collapse of Livent put the men in an impossible catch-22 situation. If the pair traveled to New York to defend themselves, they would have been arrested, and any evidence they presented would violate their right to remain silent in the face of the looming criminal charges.

However, lawyers for the note holders argue that this so-called catch-22 situation was not something that happened to Drabinsky and Gottlieb, but rather was a situation of their own making. Had the pair chosen to defend themselves against the U.S. fraud charges, they could have applied to put the civil lawsuits on hold until the end of the criminal trial. However, that option was not available to them once they opted to remain in Canada, the note holders' lawyers argue. Garth Drabinsky and Myron Gottlieb are self-professed 'fugitives from American justice, notes their brief. It would be unfair to the plaintiff class not to be able to proceed with their claim because Drabinsky and Gottlieb made the decision to avoid American justice.

The judges hearing the appeal have reserved their decision, but this could very well be the last stop on what has already been a long, twisted and often bizarre case. Neither Drabinsky nor Gottlieb testified during the original U.S. trial, citing their right to remain silent in the face of the pending criminal charges in Canada and the U.S. Instead, the pair relied upon depositions, documentary evidence and an affidavit from Robert Topol, Livent's former chief operating officer, in an effort to convince the judge they had performed adequate due diligence on Livent's allegedly fraudulent financial statements. At the time, Topol was also facing fraud charges alongside Drabinsky and Gottlieb. An Ontario judge dismissed those charges last year citing excessive court delays in bringing the case to trial.

At the original trial, U.S. District Judge Victor Marrero was unimpressed with the lack of evidence Drabinsky and Gottlieb's lawyers presented and ruled in favour of the plaintiffs in February 2004. A U.S. appeal court judge upheld that judgment in December 2005. The case took a bizarre turn exactly one year later when Drabinsky and Gottlieb brought a motion to vary the judgment, citing evidence gathered during the preliminary hearing into the Canadian criminal fraud charges. That evidence, the men claimed, showed they were the victims, not the perpetrators, of the fraud. The alleged misrepresentations in the financial statements were the product of decisions and misconduct by others (not Drabinsky and Gottlieb), and that decisions and misconduct were concealed from Drabinsky and Gottlieb, the men's lawyers contend in their appeal.

Judge Marrero dismissed the motion to vary his original judgment as did a second appeal court judge who said that while the new evidence may or may not have supported Drabinsky and Gottlieb's claims, it did little to show that the men had actually performed the due diligence that was required of them.

Whether or not Drabinsky and Gottlieb lawyers have better luck convincing a Canadian criminal court judge they had nothing to do with the alleged fraud that brought down their company has yet to be seen. The criminal trial resumes on Monday. There is no word on how long the Ontario Court of Appeal will take in deciding the appeal.

James Morton
1100 - 5255 Yonge Street
Toronto, Ontario
M2N 6P4