Alan Grayson, who was the Democrat member of the U.S. House of Representatives for Florida’s 9th district until January 2017, obtained a US$150-million judgment through his company Grayson Consulting against Clifford Lloyd and a number of other parties in South Carolina in 2014, according to the judgment in Grayson Consulting Inc. v. Lloyd.
The American judge trebled the damages, a remedy available under certain circumstances in South Carolinian courts.
But acting for himself, Lloyd, who has lived and practised law in Hamilton since 1991, convinced Ontario Superior Court Justice James Diamond that the limitation period expired in late 2016, more than a year before Grayson commenced the claim in December 2017.
“I thought it was the right decision,” Lloyd tells Law Times in an interview. “I’m tired of this case, which comes from a company I left 18 years ago. Frankly, I’m exhausted and somewhat surprised that this can still occur.
“It does remind me of Bleak House,” he adds, referring to the famously endless case in the Charles Dickens classic, which even got a mention from a U.S. judge in one of the decisions in Lloyd’s case.
Gregory Sidlofsky, a partner at litigation-focused Toronto firm Wagner Sidlofsky LLP, acted for Grayson Consulting, and he says his client has appealed Diamond’s decision.
“We were hoping that the court would approach the enforcement of a judgment from multi-party foreign litigation a little differently, giving the party seeking to enforce the judgment a little more leeway when the underlying litigation is still proceeding in the foreign jurisdiction,” Sidlofsky says.
According to a statement of claim filed with the court in Ontario, Grayson alleges that he was the victim of a Ponzi scheme in which Lloyd played a key role.
None of the allegations in the claim has been proved, and Lloyd’s statement of defence strongly denies Grayson’s claims.
Grayson’s company alleges it lost millions engaging in what it thought were stock loans from a company named Derivium Capital, only to find out later that its collateral, publicly traded securities, had been secretly sold off to fund loans to other borrowers.
The congressman’s company alleges in its claim that Lloyd was a founder of Derivium and that he received $5.5 million when he departed in 2000, though Lloyd explicitly denies both claims.
His defence says he was hired by a Canadian subsidiary of First Security Capital LLC, the company that later changed its name to Derivium, to perform legal consulting services. Occasionally, the defence says, this involved advising Derivium-related companies, but Lloyd insists he was never employed or paid directly by the firm.
In fact, he says, he only ever visited Derivium’s South Carolina office once before he was fired in 2000 and collected just US$190,000 during his three-year involvement with the Canadian subsidiary for his services and to cover expenses.
By the time Derivium entered bankruptcy protection in 2005, the company had lent out more than US$1 billion, according to Forbes magazine.
In 2007, Lloyd discovered he had been named as one of more than 50 defendants in a U.S. action brought by trustees for Derivium, and his statement of defence says he hired a New York lawyer with a narrow brief to resist the complaint by objecting to the jurisdiction of the court in South Carolina and raising the issue of a limitations defence.
Without the money to hire a lawyer or travel to South Carolina when the case proceeded, and not wanting to attorn or submit to the jurisdiction of the court, Lloyd’s defence explains that he declined to participate in the U.S. action, resulting in the August 2014 default judgment against him and a number of other defendants who failed to appear. Lloyd’s portion of the damages was assessed by the South Carolina judge as US$150 million, or US$450 million after treble damages were applied.
Grayson Consulting, which took an assignment of Derivium’s claim in 2012, appealed the U.S. judge’s decision in relation to two defendants but not Lloyd, and an appeal court confirmed the original judgment in March 2016.
According to Diamond’s decision, the company argued that the limitation period for the Ontario action should run from the March 2016 date because this was the earliest point at which the South Carolina action had run its course. Grayson also claimed that it only found out about Lloyd’s Canadian assets in late 2017.
“Once the SC judgment became final (i.e. 30 days after August 22, 2014), Grayson was under an obligation to conduct itself with due diligence with respect to seeking enforcement opportunities against Lloyd,” he wrote in the April 3 judgment. “While this does not mean that Grayson had an obligation to conduct a worldwide search of possible assets, it was already in possession of enough information about Lloyd’s real and substantial connection to Ontario that it ought to have taken investigatory steps when the SC judgment became final, or shortly thereafter.”
Gil Zvulony, a Toronto lawyer whose practice covers enforcement of foreign judgments in Ontario, says the reference to “due diligence” is a “little scary” for practitioners like him.
“It’s not entirely clear what will count as due diligence. The acceptable level is not spelled out in the decision, and it can be tricky establishing what someone’s assets are,” he says.
However, he says, Diamond’s decision lines up with the Court of Appeal’s recent decision in Independence Plaza 1 Associates, L.L.C. v. Figliolini, which involved a New Jersey judgment.
“It’s good to see the court reaffirming that decision, because it adds more clarity to the law,” Zvulony adds.
The decision is just the latest in a series of recent blows for Grayson, who, according to U.S. website Politico, was a Harvard-educated lawyer before accumulating substantial wealth in the telecommunications industry during the 1990s.
Grayson was first elected to Congress in 2008, but after almost a decade in the lower house, he set his sights on one of two Florida Senate seats for the 2016 elections. But he suffered a heavy defeat in the Democratic primary following a campaign dogged by political infighting and controversies involving his financial investments and personal life.
However, Grayson recently announced his intention to challenge for his old seat in the House of Representatives, which is up for grabs again later in 2018.
And the comeback will extend away from the political to the the courts, too, if Sidlofsky has his way.
“We’re disappointed with the decision, but we’re pursuing the matter, and we will see if the appellate court comes down with a different interpretation,” he says.