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From: StockDung1/3/2017 3:16:56 PM
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Overstock.com's Byrne loses costs ruling

2017-01-03 10:34 ET - Street Wire

by Mike Caswell

The total amount that Overstock.com Inc.'s Patrick Byrne and others must pay for defaming Aly Nazerali just grew substantially, with a judge ordering that they must foot much of Mr. Nazerali's legal bill in the case. In making the order, the judge has found that Mr. Byrne made allegations of significant misconduct against Mr. Nazerali but made no serious attempt to prove those allegations. The judge has directed Mr. Byrne to pay what is known in legal circles as special costs.

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Aly Nazerali

The determination follows the defamation judgment that Mr. Nazerali won against Mr. Byrne in the Supreme Court of British Columbia on May 6, 2016. Mr. Nazerali had complained about a website that Mr. Byrne operates called Deep Capture. The site published a series of chapters in 2011 that associated Mr. Nazerali with mafia figures and accused him of running a pump-and-dump on the TSX Venture Exchange with a company called Imagis Technologies Inc. Mr. Nazerali said that the chapters were entirely defamatory and that they had seriously damaged his reputation.

The judge hearing the case, Justice Kenneth Affleck, agreed. He found that Mr. Byrne and his co-defendant, Mark Mitchell, carried out a "calculated and ruthless campaign" to inflict as much damage on Mr. Nazerali as they could. They made little effort to ascertain if their information was true and, once Mr. Nazerali complained, they treated him with scorn, the judge determined. The judge ordered Mr. Byrne and Mr. Mitchell to pay $1.2-million in damages.

Now, the same judge has ordered Mr. Byrne and Mr. Mitchell to pay Mr. Nazerali's legal bill. The total figure is undoubtedly substantial. The trial occupied 21 days and featured five lawyers. The case file includes 112 entries spanning a period of over five years. Moreover, long before the trial both sides were making applications to the court and spending time before a judge.

Determining who must pay this bill is a litigation unto itself. Although Mr. Nazerali was mostly victorious, he is not automatically entitled to recoup all of his legal fees. In civil cases, courts usually allow the winners to recoup their fees on a scale that covers just a portion of the bill. Judges do, however, have some discretion. If they determine that the actions of one side resulted in more litigation than was necessary, they can make an adjustment. To some extent, that is what has occurred here.

In a costs decision released on Dec. 28, 2016, Justice Affleck has determined that Mr. Byrne and Mr. Mitchell forced Mr. Nazerali to go to unusual lengths to vindicate his reputation. As part of their defence, the pair made extensive and highly detailed allegations of serious misconduct, some criminal in nature, the decision states. Responding to this required much preparation by Mr. Nazerali.

Also a factor, according to the judge, was the lack of evidence they presented at trial. Mr. Byrne and Mr. Mitchell put forward a list of nine potential witnesses, with the list including five days of testimony by themselves. (Other notable mentions on the list were Vancouver lawyer Howard Shapray and author Diane Francis.) Ultimately they did not call a single witness. In the eyes of the judge, Mr. Byrne and Mr. Mitchell "had no belief that they could actually prove the elaborate defamatory publications about the plaintiff were substantially true" unless Mr. Nazerali admitted to them. Despite that, they "recklessly adhered to their allegations in their entirety throughout the trial," the decision states.

Those factors and others justify an order for what is known as special costs, the judge has determined. In this case, this means that Mr. Byrne and Mr. Mitchell must pay much of Mr. Nazerali's legal bill. The judge's decision does not include any figures. (Determining the amount will require some accounting and other adjustments. The largest adjustment will relate to the court costs of Overstock.com, a defendant that was found not liable. As part of the Dec. 28 ruling, the judge ordered Mr. Nazerali to pay Overstock.com's court costs. The judge did not order Mr. Nazerali to pay the money directly though, instead instructing that it be deducted from the costs that Mr. Byrne and Mr. Mitchell must pay.)

The ruling on costs comes with an appeal in the case outstanding. On June 6, 2016, Mr. Byrne and Mr. Mitchell asked the Court of Appeal for British Columbia to overturn the $1.2-million judgment. That matter has yet to be decided, and may not make it past the preliminary stage. On Nov. 21, 2016, the appeal court ordered Mr. Byrne and Mr. Mitchell to post $1.2-million in security for the amount of the trial judgment. If they do not post the security within 90 days, Mr. Nazerali may apply to have their appeal dismissed as abandoned.

(The decision to post any security may be a thorny one for Mr. Byrne. As it stands, it will be difficult for Mr. Nazerali to collect the $1.2-million judgment. This is because Mr. Byrne, Mr. Mitchell and the other unsuccessful defendant, Deep Capture LLC, are all resident in the United States. In order to collect, Mr. Nazerali would most likely require the assistance of a U.S. court, but U.S. courts usually do not recognize Canadian libel decisions. If Mr. Byrne does post the security and loses the appeal, the $1.2-million will go to satisfy the judgment.)

In the markets, Mr. Nazerali no longer has any role with any Canadian public company. He was most recently the president of Multivision Communications Corp., and has previously been on the boards of many companies. Mr. Byrne is the chief executive officer of Overstock.com.
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