CITATION: Leggat v. Direct Leverage Limited, 2016 ONSC 4077

DIVISIONAL COURT FILE NO.: 050/16 DATE: 201606

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

B E T W E E N :

ROY LEGGAT and PATRICIA LEGGAT

Plaintiffs

– and –

DIRECT LEVERAGE LIMITED, DIANA METZEN, TEUTON HOLDINGS, JOSEPH METZEN also known as JOE METZEN, LOARN METZEN, FINANCIAL STRATEGIES GROUP INC., EDGEWORTH MORTGAGE INVESTMENT CORPORATION, JOSEPH CITRIGNO also known as JOE CITRIGNO, and FREEBURG CONSULTING LIMITED

Defendants

Symon Zucker

for the Plaintiffs

Jennifer Teskey and Kristine Spence

for the Defendants

HEARD at Toronto: April 27, 2016

THEN J.:

1The defendants Direct Leverage Limited, Diana Metzen, Teuton Holdings, Joseph Metzen, Loarn Metzen seek leave to appeal from the order of Stewart J. dated January 15, 2016. In that order the motion judge dismissed the defendants’ motion to strike portions of the statement of claim relating to Direct Leverage Limited, (hereafter DLL) Diana Metzen, Teuton Holdings, Joe Metzen and Loarn Metzen.

the test for leave to appeal

2In order to obtain leave to appeal, the moving party must satisfy one of the two tests set out in Rule 62.02(4) of the Rules of Civil Procedure. That subrule reads:

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.

3The test for granting leave to appeal under Rule 62.02(4) is well-settled. It is recognized that leave should not be easily granted and that the test to be met is a very strict one. There are two possible branches upon which leave may be granted. Both branches involve a two-part test and in each case, both aspects of the two-part test must be met before leave may be granted.

4Under Rule 62.02(4)(a), the moving party must establish that there is a conflicting decision of another judge or court in Ontario or elsewhere (but not a lower level court) and that it is in the opinion of the judge hearing the motion "desirable that leave to appeal be granted". A "conflicting decision" must be with respect to a matter of principle, not merely a situation in which a different result was reached in respect of particular facts: Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 1992 7405 (ON SC), 7 O.R. (3d) 542 (Div. Ct.).

5Under Rule 62.02(4)(b), the moving party must establish that there is reason to doubt the correctness of the order in question and that the proposed appeal involves matters of such importance that leave to appeal should be granted. It is not necessary that the judge granting leave be satisfied that the decision in question was actually wrong; that aspect of the test is satisfied if the judge granting leave is satisfied that the correctness of the order is open to "very serious debate": Nazari v. OTIP/RAEO Insurance Co., 2003 40868 (ON SC), [2003] O.J. No. 3442 (S.C.J. per Then J.); Ash v. Lloyd's Corp. (1992), 1992 7652 (ON SC), 8 O.R. (3d) 282 (Gen Div., per Farley J.). In addition, the moving party must demonstrate matters of importance that go beyond the interest of the immediate parties and involve questions of general or public importance relevant to the development of the law and the administration of justice: Rankin v. McLeod Young Weir Ltd. (1986), 1986 2749 (ON SC), 57 O.R. (2d) 569 (H.C.J. per Catzman J.); Greslik v. Ontario Legal Aid Plan (1988), 1988 4842 (ON SCDC), 65 O.R. (2d) 110 (Div. Ct.).

6I have considered both tests in coming to my conclusion. In my view, leave to appeal should not be granted for reasons that follow.

7On the first test, I am not persuaded that the decision of Stewart J. is in conflict with other decisions nor am I persuaded that it is desirable that leave to appeal be granted.

8With respect to the second test I am not persuaded that there is good reason to doubt the correctness of the decision of Stewart J. or that the matter is of such importance that leave should be granted.

background

9In order to appreciate the legal basis of the motion for leave to appeal it is necessary to briefly set out the factual background to the action at bar.

10The defendant, Joseph Citrigno is the president of F.S.G. and a consultant with the defendant Edgeworth which is an Ontario Corporation in the business of providing advisory financial services.

11Citrigno told the Leggats about an investment opportunity in Danish mortgage bonds and directed them to deposit the funds in an account at Sydbank (the "Account"). Joe Metzen provided documents and information about the opportunity. Around June 23, 2004, the Leggats deposited the funds in the Account, as instructed by Citrigno.

12Around July 22, 2004, the Leggats entered into a joint venture agreement (the “Agreement”) with DLL care of Teuton, represented by the Metzens, under which DLL would establish the Account; the Leggats would deposit the funds into the Account; DLL would have a power of attorney from the Leggats to deal with the Account, would arrange for the funds to be invested, and would pay the Leggats monthly returns.

13The Leggats' Statement of Claim alleges that the defendants are liable as follows:

(i) The Citrigno Defendants

(i) Citrigno made false representations about the bonds and knew or ought to have known the bonds were a fraud;

(ii) Edgeworth and FSG failed to properly supervise Citrigno;

(iii) Citrigno, Edgeworth and FSG owed the Leggats a fiduciary obligation to ensure suitability of the investment for the Leggats' and properly explain the risks;

(ii) The Metzen Defendants

(i) DLL, Diana Metzer operating as Teuton, and Joe Metzen made false representations to induce the investment and breached the Agreement by using the Funds for improper purposes.

(ii) The defendants perpetrated a fraud upon the Leggats as a result of which they have been unjustly enriched and are therefore liable.

14On September 24, 2015, DLL, Diana Metzen, Joe Metzen, and Loarn Metzen (the "Metzen Defendants") brought a motion seeking to strike portions of the statement of claim under Rules 2l.Ol(l)(b), 25.06(1), and 25.06(8), for failing to disclose a reasonable cause of action including sufficiently particularized allegations of fraud, misrepresentation, breach of contract, and unjust enrichment.

Motion decision

15The motion judge concluded that the elements of fraud are adequately pleaded for the Metzen, Teuton, and DLL defendants, noting at paras. 10-16, that Metzen, Teuton, and DLL are all named in the Agreement; they made representations to the Leggats through the terms of the Agreement; the Agreement is the instrument of the fraudulent investment scheme for which the Metzen defendants are alleged to be responsible. Likewise, unjust enrichment is sufficiently pleaded by the fraudulent misrepresentation claims and the illegality of the Agreement due to Citrigno and Joe Metzen not being registered under securities legislation.

16The order provides for amendments to the title of proceedings to reflect that Teuton is a sole proprietorship, not a corporation capable of being sued in its own name. It should be noted that the statement of claim alleges that Diana Metzen operates and controls a sole proprietorship under the name Teuton Holdings. The statement of claim has been amended to indicate that Diana Metzen operating as Teuton Holdings is one party rather than Diana Metzen and Teuton as two separate parties.

the first test – conflict in decision

The Position of the Parties

17The defendants argue that the decision of the motion judge is in conflict with the body of case law that provides that claims of fraud which require a heightened standard of particularity should be struck where they are insufficiently particularized. Reliance is specifically placed on decisions of the Ontario Superior Court of Justice in Balanyk¹, Cerqueira² and Farrell³.

18The defendants contend that the plaintiffs only make broad fraud and misrepresentation allegations grouping the defendants together without differentiating between each defendant and their respective actions or representations. To the extent that the statement of claim in combination with the Agreement and the representations contained therein can found a reasonable cause of action against Direct Leverage Limited, Teuton Holdings and Joe Metzen, who are named in the agreement, that evidence cannot found a reasonable cause of action against either Diana Metzen or Loarn Metzen as they are not named in the Agreement nor in their liability for fraud otherwise specified in the statement of claim. The defendants submit that the unjust enrichment claim is not adequately pleaded as no particulars are given of any benefit to the Metzen defendants or of a corresponding deprivation for the plaintiffs. Finally the defendants submit that it is desirable that leave be granted given the stigma associated with fraud and the consequent need for this court to emphasize the requirement for heightened particularization of fraud as the rules require.

19The plaintiff submits that leave to appeal should not be granted as the motion decision is consistent with the case law and applied the same legal principles. Specifically, the statement of claim sufficiently pleaded the fraudulent misrepresentation claim against Joe Metzen, Diana Metzen operating as Teuton Holdings, and DLL. Each of those defendants appear in the Agreement and made false representations in the agreement which are incorporated into the pleadings. The representations were false as the plaintiffs’ funds were not invested as set out under the Agreement. The plaintiffs relied on these representations and lost the funds.

20The plaintiffs submit that the unjust enrichment claim is properly pleaded as Joe Metzen, Teuton Holdings as operated by Diana Metzen and DLL controlled the account, they received a benefit in the funds and the fraudulent representation and illegality of the Agreement due to Citrigno and Joe Metzen not being registered with the securities regulators gave rise to a right of restitution.

the second test – the correctness of the decision

Position of the Parties

21The defendants submit that apart from failing to adequately consider the jurisprudence pertinent to the particularization of fraud claims, the motion judge erred in failing to address concessions made by the plaintiffs i.e., the plaintiffs abandoned the claim for breach of contract and conceded that the statement of claim does not disclose a cause of action against Loarn Metzen. The defendants further submit that the motion judge improperly considered an earlier decision of Spence J. regarding this case which stated that the evidence disclosed a prima facie claim for fraud in contravention of Rule 21.01(1)(b) as outlined in Bird v. Ontario (Public Guardian and Trustee) 2002 CarswellOnt. 346 (Ont. S.C.).

22The plaintiffs do not address whether leave should be granted to address the concessions made by the plaintiffs. The plaintiffs submit that if this court finds that the fraud claim is properly particularized and the unjust enrichment clam properly supported by the evidence there is no issue of general importance warranting leave to appeal.

analysis

The First Test – Conflicting Decisions

23In my view there is no conflict between the decision of the motion judge that the fraud was adequately particularized with respect to DLL, Teuton Holdings as operated by Diana Metzen and Joe Metzen and those decisions of this court which require heightened particularization of claims of fraud. In my view, in the circumstances of this case the decision nfo the motion judge conforms to the principles outlined in Balanyk, Cerqueira and Farrell, supra.

24The motions judge was alive to the requirement of full particulars of all elements of fraud (para. 8 of the Decision) and specifically addressed those elements at paras. 9-16 of the decision. The representations and participation of each of the defendants outlined in the Agreement which was found by the motion judge to be the instrument of the fraudulent investment scheme are all deemed to be pleaded. (See Wel Offset Publications Ltd. v. Vickery (1999), 143 O.R. (3d) 802 (Ont. C.A.) at para. 3; McCreight v. Canada (General), 2013 ONCA 445 at para. 32 (Ont. C.A.). In my view there was a sufficient basis to conclude that there was a reasonable cause of action with respect to the defendants based on the allegations in the statement of claim and in particular with respect to the representations and participation outlined in the Agreement referred to in the statement of claim as against DLL, Diana Metzen operating as Teuton Holdings and Joe Metzen.

25The defendants submit that because Loarn Metzen and Diana Metzen are not named in the Agreement and because the statement of claim does not otherwise particularize their participation in the alleged fraud there is accordingly no basis to conclude that there is a reasonable cause of action against Loarn Metzen or Diana Metzen. Indeed the plaintiff conceded before the motion judge that the statement of claim does not disclose a cause of action against Loarn Metzen.

26With respect to Loarn Metzen the failure of the motion judge to strike the pleadings as disclosing no reasonable cause of action with respect to this defendant is obviously an oversight on the part of the motion judge. In my view it is not desirable to cure this oversight by granting leave to appeal to Loarn Metzen and thereby to incur unnecessary expenditure of time and resources. In Toronto, motions for leave to appeal are heard on the Divisional Court motions list by a judge of the Divisional Court who is sitting as a judge of the Superior Court of Justice (rule 62.02(1.1)).

27In my view, in the circumstances of this case it is appropriate for me to make the order that ought to have been made by the judge below and strike the pleadings with respect to Loarn Metzen as disclosing no reasonable cause of action with leave to amend.

28With respect to Diana Metzen, while I agree that she is not mentioned specifically in the Agreement. However, Teuton Holdings is specifically mentioned. Moreover, the statement of claim has been amended to reflect that Diana Metzen operating as Teuton Holdings is to be considered as one party rather than as two separate parties. Accordingly, I am of the view that the representations and participation outlined in the Agreement attributable to Teuton Holdings is also attributable to Diana Metzen as are the allegations with respect to Diana Metzen and Teuton Holdings contained in the statement of claim (See: paras. 4, 15, 30, 31, 32, 33, 34, 35).

29Given my view the statement of claim has been adequately particularized against the defendants DLL, Joe Metzen and Diana Metzen operating as Teuton Holdings it is not desirable to grant leave to appeal as the defendants have failed to satisfy the first test for leave to appeal.

the second test: rason to doubt the correctness of the order

30In dealing with the first test I have determined that the motion judge was not in conflict with jurisprudence regarding the heightened particularization required of claims of fraud.

31As outlined above, any error by the motion judge in failing to deal with the concession of the plaintiff that the statement of claim does not disclose a cause of action against Loarn Metzen does not require the granting leave to appeal but can appropriately be dealt with by this court making the order which could have been made by the motion judge.

32In my view the failure of the motion judge to address the concession made the plaintiffs in abandoning the claim for breach of contract does not give rise to a successful application for leave to appeal to the Divisional Court but is more appropriately dealt with by the trial judge.

33The defendants submit that the motion judge erred in improperly considering an earlier decision of Spence J. which stated that the evidence in this case disclosed a prima facie claim of fraud thus contravening Rule 21.01(1)(b). While reference was made to the decision of Spence J. the motion judge did not purport to adopt the observations of Spence J. but merely referred to the decision as part of the history of the case.

34As for the importance of the matter, the reasons of the motion judge demonstrate a keen appreciation of the necessity of full particulars with respect of claims of fraud. In my view the application of the correct principles to the unique facts of this case do not raise issues of general importance that transcend the interests of the parties.

35On the second test I am not satisfied that there is reason to doubt the correctness of the decision of Stewart J. or that it is of sufficient importance to grant leave to appeal.

36Accordingly, for all these reasons the application for leave to appeal is dismissed with costs.

37The parties have agreed that with respect to the costs of the underlying motion (by Stewart J. on September 24, 2015) the parties have agreed to pay $5,000 to the successful party with respect to the motion for leave to appeal. Accordingly, it is ordered that with respect to the underlying motion the defendants DLL, Diana Metzen operating as Teuton Holdings, Joe Metzen shall pay costs in the amount of $5,000 all inclusive to the plaintiffs/respondents.

38The parties agree that costs of the motion for leave to appeal be left to the discretion of the judge hearing the motion for leave to appeal. The defendants take the position that each party pay its own costs. In my view having regard to the factors outlined in Rule 57 it is fair and reasonable to award costs in the amount of $3,000 all inclusive to the plaintiffs/respondents on the leave application.

THEN J.

RELEASED: June 20, 2016

CITATION: Leggat v. Direct Leverage Limited, 2016 ONSC 4077

DIVISIONAL COURT FILE NO.: 050/16 DATE: 201606

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N :

ROY LEGGAT and PATRICIA LEGGAT

Plaintiffs

– and –

DIRECT LEVERAGE LIMITED, DIANA METZEN, TEUTON HOLDINGS, JOSEPH METZEN also known as JOE METZEN, LOARN METZEN, FINANCIAL STRATEGIES GROUP INC., EDGEWORTH MORTGAGE INVESTMENT CORPORATION, JOSEPH CITRIGNO also known as JOE CITRIGNO, and FREEBURG CONSULTING LIMITED

Defendants

Footnotes

1. 1Balanyk v. University of Toronto, 1999 14918 (ON SC), [1999] O.J. No. 2162 (S.C.J.)
2. 2Cerqueira v. Ontario, 2010 ONSC 3954, [2010] O.J. No. 3037 (S.C.J.)
3. 3Farrell v. Salvation Army, [2011] O.J. No. 245 (S.C.J.)