Future Health Inc. v. State Farm Mutual Automobile Insurance Company of Canada
CITATION: Future Health Inc. v. State Farm Mutual Automobile Insurance Company of Canada, 2014 ONSC 356
DIVISIONAL COURT FILE NO.: 00-1278 (Hamilton)
DATE: 2014-01-16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Future Health Inc. operating as Trauma Services as continued by its Trustee in Bankruptcy, Scott, Picheilli & Graci Ltd., (Plaintiff)
A N D:
State Farm Mutual Automobile Insurance Company of Canada, (Defendant)
BEFORE: The Honourable Mr. Justice H.S. Arrell
COUNSEL: Jane Poproski, for the Plaintiff
David S. Steinberg and Paul A. Lee, for the Defendant/moving party
HEARD: January 8, 2014 (in Hamilton)
E N D O R S E M E N T
Introduction:
[1] State Farm seeks leave to appeal the decision of Lococo J. (2013 ONSC 2941) dismissing the motion of the Applicant seeking to have the claims of the Plaintiffs, for punitive and aggravated damages only, declared a nullity. For the reasons that follow I would dismiss this motion.
Backgound:
[2] Future Health Inc. was in the business of providing treatment plans and health care services to patients injured in motor vehicle accidents. The patients were covered by automobile insurance policies issued by general insurance companies, including State Farm Mutual Automobile Insurance Company of Canada. These policies provided medical and rehabilitation benefits under the Statutory Accident Benefits Schedule[^1] and predecessor regulations.
[3] Future Health made an assignment in bankruptcy on December 31, 1998. Future Health remains an undischarged bankrupt.
[4] In June 2000, on the instructions of the bankruptcy trustee, an action was brought against State Farm and others. The style of cause identified the Plaintiff as "Future Health Inc., operating as Trauma Services, as continued by its Trustee in Bankruptcy, Scott, Pichelli & Graci Ltd."
[5] In this action, the Plaintiff has claimed damages for intentional interference with economic relations, inducing breach of contract, bad faith and conspiracy. The Plaintiff also seeks aggravated damages as well as punitive and exemplary damages against State Farm.
[6] In the motion before Lococo J. State Farm sought an order dismissing the action to the extent that it alleged bad faith and claimed punitive damages against it. The position of State Farm was that the bankrupt company Future Health was the proper party to bring an action claiming such in personam relief, not the bankruptcy trustee.
[6] According to State Farm, Future Health's right to assert such an in personam claim did not form part of the property that passed to the bankruptcy trustee upon Future Health's bankruptcy. The bankruptcy trustee accordingly had no legal capacity to bring an action claiming such relief. The action was therefore a nullity to the extent that the bankruptcy trustee advanced those claims. Future Health itself is no longer able to bring an action claiming such relief, given that the limitation period for doing so expired long ago.
[7] The position of Plaintiff's counsel before Lococo J. was that the bankruptcy trustee had the authority to claim the relief sought – the capacity to do so either passed automatically to the trustee upon the bankruptcy or was assigned by Future Health.
[8] According to State Farm, the only part of the relief claimed that could be properly advanced by the bankruptcy trustee was for the balance of any amounts due to the Plaintiff for health care services by persons who were insured by State Farm.
[9] Lococo J. found that the authority of this Court to dismiss the Plaintiff's action to the extent sought by State Farm is Rule 21 of the Rules of Civil Procedure.[^2] Rule 21 permits the Court to determine questions of law prior to trial that will have the effect of disposing of all or part of an action. In particular, under Rule 21.01(3)(b) an action may be dismissed or stayed on the ground that the Plaintiff is without legal capacity to commence or continue the action.
[10] Lococo J. stated at para. 14:
"The principles to be applied when considering a motion under Rule 21 have been well considered in previous decisions, including by the Supreme Court of Canada in Hunt v. Carey Canada Inc.[^3] as well as by this Court in Dylex Ltd. (Trustee of) v. Anderson.[^4] In the latter case, the Defendants brought a motion to strike out portions of a bankruptcy trustee's statement of claim on the grounds that the trustee was not the proper party to bring an action for such relief. In that case, Justice Lederman summarized the principles to be applied on a Rule 21 motion as follows:
The well settled principles applicable to motions to strike out claims as disclosing no reasonable cause of action or for the determination of points of law under Rule 21 can be stated as follows:
The statement of claim should not be struck out unless it is "plain and obvious" that the claim discloses no reasonable cause of action;
The allegations in the statement of claim are to be taken as true or capable of being proven unless they are patently ridiculous or incapable of proof;
The statement of claim is to be read generously with due allowance for drafting deficiencies;
The court should not at this stage of the proceedings dispose of matters of law that are not fully settled in the jurisprudence.[^5]"
[11] The learned motions judge, in the case at bar, went on to rule at para. 15:
"After considering the record before me and the submissions of counsel in this case, I have concluded that it is not "plain and obvious" that the bankruptcy trustee did not have the legal capacity to allege bad faith and claim punitive damages in this case. In this regard, it is clear from the case law that a breach of a duty of good faith giving rise to a claim for punitive damages is independent of and in addition to a related breach of contract or other actionable wrong.[^6] It is also clear that such an in personam claim may not form part of the property that automatically passes to and vests in the bankruptcy trustee pursuant to section 71 of the Bankruptcy and Insolvency Act[^7] upon the bankrupt's assignment in bankruptcy. In this regard, State Farm relied on the reasoning of the British Columbia Court of Appeal in the case of Frederickson v. Insurance Corp. of British Columbia,[^8] which dealt with the issue of assignability of a cause of action in tort. In that case, the Court considered exceptions to the general rule that a bare cause of action in tort is not assignable, including cases in which the assignee has either a pre-existing property interest or a legitimate commercial interest in the enforcement of a claim. The Court stated that an action based on a personal wrong such as assault, libel or personal injury could not qualify for assignment under this exception since the assignee can have no legitimate property or commercial interest in recovery. However, the Court also stated that the categories of exceptions are not closed, and that in each case, "the court must ask itself whether the assignment can fairly be seen as prompted by a desire to advance the cause of justice rather than an intermeddling for some collateral reason."[^9]"
[12] In the current case Lococo J. also found at paras. 16, 17, and 18 that:
"... it was clear from the record before me that the action was brought after Future Health's bankruptcy upon the instructions of the bankruptcy trustee. Plaintiff's counsel argued that the bankruptcy trustee had the authority to bring an action alleging bad faith and punitive damages, either because the cause of action formed part of the property of the bankrupt that automatically passed to the trustee on bankruptcy or because the bankrupt company independently assigned that right of action to the bankruptcy trustee. While it is clear to me that the Plaintiff may have a challenging time establishing either of these propositions at the appropriate time, it is not necessary for the Plaintiff to do so at this stage of the action. Rather, the onus is on State Farm to establish that it is plain and obvious that the bankruptcy trustee does not have the legal capacity to assert those claims. I find that this onus has not been met.
In particular, in my view, it is open to the bankruptcy trustee to argue that Future Health's right of action alleging bad faith and punitive damages formed part of the property that passed to the bankruptcy trustee either automatically upon Future Health's assignment in bankruptcy or by way of separate assignment. Such a proposition would be a novel extension of the class of exceptions to the general rule relating to the assignability of actionable wrongs, but the category of exemptions is not closed. I cannot reasonably exclude the possibility that the cause of justice may be thwarted by determining that issue at this stage, which would be inconsistent with the clear preference in the rules for determining actions on their merits. In my view, it would be appropriate to make this determination on the basis of a proper evidentiary record either on a summary judgment motion or at trial.
In reaching this conclusion, I also took into account the fact that this action was commenced in June 2000 and that more than a decade passed before the issue of the bankruptcy trustee's capacity to bring the action was raised by State Farm ... The Plaintiff would therefore clearly be prejudiced by dismissal of a substantial portion of the action at this stage. As well, as discussed further below, prejudice would also flow from Future Health's inability to bring a new action in its own name at this stage because of the expiry of the limitation period."
Analysis:
[13] Rule 62.02 of the Rules of Civil Procedure provides,
"(4) Leave to appeal shall not be granted unless,
(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted."
[14] The rule for leave to appeal makes it clear that leave should not be granted unless the criteria in the rule are met. As stated in Bell Express Vu Limited Partnership v. Morgan 2008 63136 (ON SCDC), [2008] O.J. No. 4758 "...the test is an onerous one". Clearly the onus is on State Farm to persuade me that the criteria in the rule for granting leave have been met.
[15] The Rule is conjunctive. Both aspects of Rule 62.02(4) either (a) or (b) must be met. Matters of general importance relate to matters of public importance and matters relevant to the development of the law and the administration of justice, not matters that may be of particular importance relevant only to the litigants.
Greslik v. Ontario Legal Aid Plan 1988 4842 (ON SCDC), [1988] O.J. No. 525 at page 3
Rankin v McLeod, Young, Weir Ltd. (1986), 1986 2749 (ON SC), 57 O.R. (2nd) 569
[16] State Farm argues both aspects of Rule 62.02(4) have been met. It argues firstly that there are conflicting decisions to the case at bar by Festeryga J., at first instance, and Marshall J. in the leave to appeal motion of the decision of Festeryga J., in 2005. I disagree.
[17] The motion before Festeryga J. was brought by State Farm for security for costs under Rule 56.01(1)(i), which he granted. The issue of the trustee's capacity to bring this action was not before him. It is clear to me, after reviewing the decision in its entirety that the statement the Applicant's counsel relies on as conflicting, at para. 21., is at best obiter. The learned judge made the following statement "At law, the bankrupt corporate Plaintiffs claim for alleged bad faith and punitive damages do not vest in the Trustee."
[18] Festeryga J. at para. 19 made it abundantly clear the principles he was using to render his decision when he ruled;
"Having established prima facie entitlement to security for costs and the Plaintiff not having discharged the burden of proof that it is truly impecunious, then in my view, I need not go to the next step, that is, to determine the merits of the Plaintiff's case."
[19] As stated in Black's Law Dictionary (ninth edition) obiter dictum is "A judicial comment made while delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential (although it may be considered persuasive)."
[20] The Plaintiff sought leave to appeal the decision of Festeryga J. before Marshall J. He dismissed the application concluding that the learned motions judge had exercised his discretion in an appropriate manner on the issue of security for costs. Marshall J. makes no mention, whatsoever, of Festeryga J.'s comment regarding what claims may vest in the trustee. No doubt he concluded, as have I, that such a comment was not an issue before Festeryga J. or on the leave to appeal regarding security for costs.
[21] I, therefore conclude that State Farm has not presented any conflicting decision to that made by Lococo J. I also conclude that the Applicant has failed to persuade me that it is desirable in the interests of justice to grant leave to appeal under this criteria of Rule 21.
[22] The Applicant also argues under the second criteria of the rule that there is good reason to doubt the correctness of the decision of Lococo J. I disagree.
[23] This is not a rule 20 motion. In spite of this matter being 14 years in the system, the parties for whatever reason have not yet had discoveries. Based on the evidence before him Lococo J. concluded it was not plain and obvious that the Plaintiff would fail. Whether the assignment in question to the trustee occurred is a question of fact and the learned motions judge concluded that a full evidentiary record was necessary to make that determination. He did not have such a record before him on a rule 21 motion and therefore exercised his discretion to dismiss the motion, as he was entitled to do. There is no reason to doubt the correctness of his reasoning to exercise his discretion to dismiss the motion.
[24] The motion before Lococo J. was certainly important to the parties as it was an attempt to eliminate a major part of the claims advanced by the Plaintiff. That however, is not the test under the rule. The onus is on the Applicant to persuade me that the issue decided by Lococo J. is of such public importance to the development of the law and the administration of justice that leave to appeal should be granted. The Applicant has not so persuaded me. The law under Rule 21 has been established for decades. There is no reason to revisit it. The decision of the motions judge was a simple case of him properly exercising his discretion under a rule which has a long, well established history, and is used only to dismiss cases where it is plain and obvious they cannot succeed. That is not this case.
Conclusion:
[25] Leave to appeal to the Divisional Court is refused. The parties agreed that if I dismissed the application costs were payable to the Plaintiff forthwith, in any event of the cause, in the amount of $3000.00 inclusive of taxes and disbursements and I so order.
Arrell J.
DATE: January 16, 2014
[^1]: O. Reg. 403/96. [^2]: R.R.O. 1990, Reg. 194. [^3]: 1990 90 (SCC), [1990] 2 S.C.R. 959. [^4]: (2003), 2003 14551 (ON SC), 63 O.R. (3d) 659 (S.C.J.). [^5]: Ibid. at para. 8. [^6]: See Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 at para. 79. [^7]: R.S.C. 1985, c. B-3. [^8]: 1986 1066 (BC CA), [1986] B.C.J. No. 366 (C.A.) at pp. 5-9. [^9]: Ibid. at pp. 5-6.