CITATION: Taverna v. Fitness Clubs of Canada (Richmond Hill) Inc., 2011 ONSC 6374

DIVISIONAL COURT FILE NO.: 377/10

DATE: 20111028

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

PARDU, DAMBROT and MULLIGAN JJ.

BETWEEN:

MAY TAVERNA, MICHAEL CLEMENTS and SSR FITNESS INC.

Moving Parties/Appellants

– and –

FITNESS clubs of Canada (Richmond Hill) Inc., Fitness Clubs of Canada (Dundas) Inc., Fitness Clubs of Canada holdings Inc., Jeremy Klugerman, Markus Lanz, Wynn Properties Inc., Paul Wynn, Jeffrey Wynn, Leslie Wynn, Adam Bender, Robert E. Pollock, 2157494 Ontario Inc., and 2157694 Ontario Inc.

Respondents

Kevin D. Sherkin, for the Moving Parties (Appellants)

Martine M. Morin for Wynn Properties Inc., Paul Wynn, Jeffrey Wynn, Leslie Wynn, Adam Bender, 2157494 Ontario Inc., 2157694 Ontario Inc. and Wynn Fitness Clubs Holdings Limited

Thomasina A. Dumonceau for Robert E. Pollock

David W. Dolson for Jeremy Klugerman and Markus Lanz

HEARD at Toronto: October 24, 2011

REASONS FOR JUDGMENT

MULLIGAN J.:

[1] The appellant May Taverna (“Taverna”) brings an appeal of the order of The Honourable Mr. Justice C. Campbell dated June 21, 2010. Taverna seeks that the order be set aside and in its place an order be granted giving Taverna leave to commence a derivative proceeding. The responding parties oppose the relief sought and request that the appeal be dismissed with costs.

[2] As a preliminary matter the appellant brought a motion seeking leave to introduce fresh evidence. For oral reasons given at the hearing that motion was dismissed.

[3] For reasons that follow we would dismiss the appeal of Taverna seeking to set aside the order of the motions judge.

[4] Although there are a number of facts in dispute a review of the undisputed facts will provide context for the discussion that follows. The defendant Fitness Clubs of Canada Holdings Inc. (“FCC”) was incorporated in January of 2007. In February of 2007 Taverna entered into a Shareholders’ Agreement with the defendants Jeremy Klugerman (“Klugerman”), Paul Wynn (“Wynn”) and FCC. Taverna was a twenty-five percent shareholder as was Klugerman, Wynn was a fifty percent shareholder. Two other companies were also incorporated, Fitness Clubs of Canada (Dundas) Inc. (“Fitness Dundas”) and Fitness Clubs of Canada Richmond Hill Inc. (“Fitness Richmond Hill”). FCC was the primary shareholder of Fitness Dundas and Fitness Richmond Hill with the balance of the shares in those companies being held by its managers. Taverna was not a shareholder of those companies. Fitness Richmond Hill began operations as a fitness club open to the public in February of 2007 and Fitness Dundas opened in July of 2007. At the time of incorporation Taverna was an officer and director of FCC. In October of 2007 she resigned as an officer and director of FCC.

[5] In December of 2007 Fitness Dundas and Fitness Richmond Hill were locked out of their premises and their leases were terminated by the landlord. Those companies have not completed any corporate filings with the Ministry since October of 2009.

[6] FCC Holdings was cancelled for cause by the Ministry on October 7, 2009, for its failure to have directors. The company has no assets and no longer carries on business.

[7] In April of 2008, Taverna and other plaintiffs commenced an action against the defendants for damages alleging conspiracy, collusion for fraudulent conveyance, breach of contract, negligence and breach of fiduciary duty (the “Main Action”). Taverna caused the FCC companies to be noted in default in the Main Action in November of 2009.

[8] In addition to her involvement with FCC Taverna is the principal of an unrelated fitness club, Fitness Clubs of Canada (Aurora). A competitor, Extreme Fitness Inc. (“Extreme”) commenced action against FCC and Taverna’s company FCC (Aurora). By way of Minutes of Settlement the action by Extreme against Taverna’s company FCC (Aurora) was dismissed. As part of that settlement Taverna provided affidavit evidence supporting Extreme’s claim against FCC. Extreme then commenced a second action against Wynn and others mirroring the claims in Taverna’s Main Action.

[9] Taverna also commenced defendant’s claims against FCC in Small Claims Court actions brought by certain creditors against FCC.

[10] Against this backdrop Taverna brought a motion before the motions judge seeking an order to permit commencement of a derivative proceeding on behalf of FCC.

[11] In his endorsement of June 4, 2010, the motions judge reviewed the evidence and made findings on the following issues:

1. Whether or not Taverna was a “complainant” as defined by s. 245 of the Ontario Business Corporations Act, R.S.O. 1990 c.B.16 (“OBCA”); and

2. Whether or not Taverna was acting in good faith as far as the corporations were concerned.

As the motions judge stated at paras. 14 and 15:

14. I do find that there was substantial delay by Taverna that has not been satisfactorily explained and given the multiplicity of actions commenced by May Taverna and her husband, I conclude she is not acting in good faith insofar as the corporations are concerned.

15. As to granting leave under s. 246.1 of the OBCA, I would decline to do so on the grounds set out about. In addition, the claims of May Taverna are live in the existing actions and in addition Fitness Holdings through which she primarily claims is dissolved.

[12] In our view the motion judge’s finding that Taverna was not acting in good faith is owed a high degree of deference and is dispositive of the issue.

[13] In Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 Iacobucci and Major JJ. speaking for the majority provided guidance on the standard of review for findings of fact by judges. As the Court stated at para. 10:

The standard of review for findings of fact is that such findings are not be reversed unless it can be established that the trial judge made a “palpable and overriding error”. …We find it useful, for the purpose of this appeal, to review briefly the various policy reasons for employing a high level of appellant deference to findings of fact.

[14] At para. 12 the Court quoted with authority the comments of Laskin J.A. in Gottardo Properties (Dome) Inc. v. Toronto (City) (1998), 162 D.L.R. (4th) 574 (Ont. C.A.):

Deference is desirable for several reasons: to limit the number and length of appeals, to promote the autonomy and integrity of the trial or motion court proceedings on which substantial resources have been expended, to preserve the confidence of litigants in those proceedings, to recognize the competence of the trial judge or motion judge and to reduce needless duplication of judicial effort with no corresponding improvement in the quality of justice.

[15] It is clear that an appellant seeking leave to commence a derivative action bears the onus to show positively that the application is brought in good faith, see: Bennett v. Rudek, [2008] B.C.J. No. 1798 at para. 45.

[16] In fact good faith is one of the enumerated factors under s. 246(2) of the OBCA for complainants who seek leave to apply for a derivative proceeding. As s. 246(2) provides:

No action made be brought and no intervention in an action may be made under subsection (1) unless the complainant has given fourteen days’ notice to the directors of the corporation or its subsidiary of the complainant’s intention to apply to the court under subsection (1) and the court is satisfied that:

a) The directors of the corporation or its subsidiary will not bring, diligently prosecute or defend or discontinue the actions;

b) The complainant is acting in good faith; and

[emphasis added]

c) It appears to be in the interest of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.

[17] One of the factors commented on by the motion judge in determining that Taverna was not acting in good faith was substantial delay which he found on the facts before him. In Peel Financial Services Ltd. v. OMERS Realty Management Corp. 2009 CarswellOnt 4746, Mesbur J. stated at para 51: “The long delay in seeking leave to commence the derivative action also bears some comment and goes to the issue of good faith”.

[18] The motions judge also commented on the multiplicity of actions in reaching his conclusion regarding good faith. As Anderson J. stated in Vedova v. Garden House Inn Ltd. 1985 CarswellOnt 140 at para. 11:

Leaving aside the question of whether on the material it could be said that it is in the interest of the corporation that the action be brought, I am not persuaded that the complainants (applicants) are acting in good faith. In my view, they are motivated less by the potential return to the corporation than the potential tactical advantage as against the respondents Ballantine and Stevens, which is inherent in the potential action.

[19] It is clear that Taverna has the onus of proving that she was acting in good faith. In addition to the factors enumerated by the motions judge it appears on the material before him that Taverna noted FCC in default in the Main Action. Taverna entered into Minutes of Settlement with respect to an action commenced by Extreme Fitness discontinuing its claim against her company. Immediately thereafter Extreme Fitness commenced a claim against FCC. Finally FCC is a dissolved corporation and there is no evidence that Taverna has made any effort to revive the company. Against the backdrop of these actions we agree with the respondents’ submissions that Taverna has not put forward any evidence to demonstrate that she is acting in good faith.

CONCLUSION

[20] The motions judge made a clear finding that Taverna was not acting in good faith.

[21] On the record before us we are not satisfied that the motion judge made a palpable and overriding error which invites appellate review. The appellant’s motion is dismissed.

COSTS

[22] If the parties are unable to resolve costs we will receive written submissions from the responding parties within 20 days of the release of this judgment. The appellants will then have a further 10 days to reply.

Pardu J.

Dambrot J.

Mulligan J.

Released: October 28, 2011

CITATION: Taverna v. Fitness Clubs of Canada (Richmond Hill) Inc., 2011 ONSC 6374

DIVISIONAL COURT FILE NO.: 377/10

DATE: 20111028

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

PARDU, DAMBROT and MULLIGAN JJ.

BETWEEN:

MAY TAVERNA, MICHAEL CLEMENTS and SSR FITNESS INC.

Moving Parties/Appellants

– and –

FITNESS clubs of Canada (Richmond Hill) Inc., Fitness Clubs of Canada (Dundas) Inc., Fitness Clubs of Canada holdings Inc., Jeremy Klugerman, Markus Lanz, Wynn Properties Inc., Paul Wynn, Jeffrey Wynn, Leslie Wynn, Adam Bender, Robert E. Pollock, 2157494 Ontario Inc., and 2157694 Ontario Inc.

Respondents

REASONS FOR JUDGMENT

Mulligan J.

Released: October 28, 2011