Court File and Parties
Court File No.: CV-18-26572 Date: 2018-09-27 Ontario Superior Court of Justice
Between: Lynne Marie Chibante, Plaintiff (Responding Party) – and – Luis Chibante, 1797540 Ontario Inc., and Golden Acre Farms, Inc., Defendants (Moving Party)
Counsel: Dante D. Gatti, for the Plaintiff (Responding Party) Justin Safayeni, for the Defendant (Moving Party), Luis Chibante
Heard: August 31, 2018
Ruling on Motion
Hebner J.:
[1] This motion was brought by Luis Chibante (“Luis”) to strike three paragraphs in the statement of claim of the plaintiff, Lynne Chibante (“Lynne”). Luis asserts that the paragraphs at issue are an abuse of process, would prejudice and delay the fair trial of the issues, and disclose no reasonable cause of action. Luis relies upon rr. 21.01(1)(b), 21.01(3)(d) and 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
Background facts
[2] Luis and Lynne were married on August 18, 1990. They separated in March 2017. There is an outstanding action commenced by Luis bearing court file number FS–17–17997 dealing with spousal support and an equalization of net family properties (“the family law proceeding”).
[3] The subject of this proceeding is the parties’ business in Leamington. Luis and Lynne are equal shareholders, both directly and through a family trust, in Golden Acre Farms Inc. (“Golden Acre”), a greenhouse operating company in Leamington, Ontario. Golden Acre is in the business of growing and selling cucumbers.
[4] Lynne and Luis are also equal shareholders of a holding company that owns vacant land and units in a limited partnership called Golden Fresh Farms Enterprises L.P. (“Golden Fresh”). Golden Fresh owns and operates a farm in the state of Ohio. Golden Fresh is in the business of growing and selling tomatoes. Together, Lynne and Luis own one half of Golden Fresh. The other half is owned by Lynne’s nephew, Paul Mastronardi (“Paul”). Paul is not affiliated with Mastronardi Produce, identified later in this decision.
[5] Both this proceeding and the family law proceeding are being case managed by the writer.
[6] This proceeding was commenced by way of two applications, one brought by Lynne and the other brought by Luis, for relief under the Business Corporations Act, R.S.O. 1990, c. B.16. In their respective applications, both parties claim the right to purchase the interest of the other at fair market value. It is common ground that one party should purchase the interest of the other; the question is which party ought to be the buyer and which party ought to be the seller.
[7] In addition, Lynne, in her application, has alleged that Luis breached his fiduciary duties to Golden Acre and engaged in conduct amounting to fraud to benefit himself. Lynne alleges that Luis was aided and abetted in doing so by Mastronardi Produce Limited (“Mastronardi Produce”). Lynne refers to Mastronardi Produce as “AccompliceCo”.
The Allegations
[8] Luis runs the parties’ business. Lynne, throughout the parties’ marriage, was a stay-at-home mother and homemaker. Luis has always been in effective control of the business.
[9] Prior to August 2017, Golden Acre distributed its cucumbers using a company owned by Lynne’s brother. In August 2017, shortly after the parties separated, Luis unilaterally changed Golden Acre’s distributor from Lynne’s brother to Mastronardi Produce. The press release announcing the new relationship was made on August 14, 2017.
[10] Lynne’s allegation of wrongdoing is essentially that Luis caused Golden Acre to enter into an improvident agreement with Mastronardi Produce and then, acting in concert with Mastronardi Produce, engaged in fraud involving the misrepresentation of small or medium cucumbers as extra small cucumbers (the “alleged cucumber fraud”).
[11] The allegations are specifically set out in paras. 2(k)(i) and (v) of Lynne’s Application which read as follows:
k. In addition to the breakdown of the relationship between the Applicant Lynne and the Respondent Luis, the Respondent Luis has committed, or is believed to have committed a number of acts that are acts of oppressive, or unfairly disregard the interests of the Respondent Lynne, and are breaches of Luis’ obligation as a Director. Those actions include:
i. Luis has intentionally misrepresented the revenues of Golden Acre and has under reported the revenues by hundreds of thousands of dollars;
v. Luis had Golden Acre enter into one or more contracts with a third party called Mastronardi Produce Limited which was not in the best interests of, and has caused financial injury to 179, and Golden Acre.
[12] Luis denies these allegations. However, until they are resolved, the allegations impair the parties’ ability to proceed with the buyout from one to the other.
Procedure
[13] In an effort to move forward with this litigation, at the case management conference on June 14, 2018, the parties agreed that there would be “a trial of the issues of intentional misrepresentation and breach of fiduciary duty raised by Mrs. Chibante (paragraph 2(k)(i) and 2(k)(v)) in Mrs. Chibante’s amended notice of application” (see endorsement). The endorsement provided that the trial of the issue would be managed, which included the following:
a) Lynne was to serve a statement of claim on those issues within 20 days;
b) Luis was to serve a statement of defence on those issues within 20 days thereafter;
c) Lynne was to serve her reply within 10 days thereafter;
d) the trial of the issue is set for the week of December 3, 2018 for three days before a judge other than myself.
[14] The statement of claim was served within the time specified. Thereafter, Luis brought this motion seeking an order striking paras. 7(e), (f) and (i) of the statement of claim. Those paragraphs read as follows:
7 (e) Luis had Golden Fresh ship produce to AccompliceCo and accepted payment from AccompliceCo at hundreds of thousands of dollars less than what AccompliceCo was contractually obligated to pay Golden Fresh for;
(f) Luis accessed the confidential and private emails of Paul Mastronardi and forwarded such emails to AccompliceCo for the purpose of assisting Luis and AccompliceCo to the detriment of Golden Acre and 179;
(i) Luis allowed AccompliceCo to default in its payment obligations to Golden Fresh which has resulted in AccompliceCo not paying Golden Fresh hundreds of thousands of dollars that AccompliceCo was contractually obligated to pay Golden Fresh.
Golden Fresh
[15] Golden Fresh is the subject of litigation in Ohio between Luis and Paul. Both Paul and Luis filed a complaint for dissolution of the partnership and winding up of its affairs. The court in Ohio has appointed a receiver, Mr. James Thieman, for Golden Fresh. It is my understanding that Mr. Thieman is proceeding to deal with the litigation and the winding up of Golden Fresh in Ohio. That litigation is beyond the scope of this action and, specifically, beyond the scope of the trial of the issue scheduled for December.
[16] Paul and Luis are engaged in another piece of litigation in this Court bearing court file number CV-17–2563 in which Paul is the plaintiff and Luis the defendant. In that action, Paul has claimed damages against Luis for allegedly accessing his private emails and electronic data. That litigation, as well, it is beyond the scope of this action.
The Issue
[17] The issue on the motion is whether the three paragraphs in the statement of claim, identified above, ought to be struck as being outside the scope of Lynne’s notice of application and the case management order for a trial of the issues. Luis relies on r. 25.11, which reads as follows:
25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair trial of the action;
(b) is scandalous, frivolous or vexatious; or
(c) is an abuse of the process of the court.
[18] In addition, Luis relies on rr. 21.01(1) and (3) pertinent parts of which read as follows:
21.01 (1) A party may move before a judge,
(c) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, and the judge may make an order or grant judgment accordingly.
(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,
(d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court, and the judge may make an order or grant judgment accordingly.
Positions of the Parties
[19] Luis takes the position that the offending paragraphs in the statement of claim are outside the scope of my case management order and constitute an abuse of process. Luis takes the position that the inclusion of the paragraphs will prejudice and delay the trial of the issues by expanding the steps that need to be taken to ready the matter for the trial. Luis asserts that these paragraphs are not causes of action that are tenable in law.
[20] Lynne points out that Luis is in charge of everything related to the business. Lynne is essentially an outsider. She likens her position to playing chess in the dark. Lynne points out that there are indices of possible additional wrongdoing on the part of Luis. She points to the following:
There are three promissory notes whereby Luis borrowed $600,000 from Mastronardi Produce 53 days after he caused Golden Acre to enter into a contract with Mastronardi Produce. She asserts that such a non-arm’s-length relationship causes concern.
There is a letter from the receiver in Ohio, Mr. Thieman, to Mastronardi Produce dated February 14, 2018, dealing with the distribution agreement between Golden Fresh and Mastronardi Produce there (apparently Luis caused Golden Fresh to enter into a similar contract with Mastronardi Produce in Ohio). Mr. Thieman contends that Mastronardi Produce had failed to pay Golden Fresh monies owed. Lynne asserts that there may have been a fraud similar to the cucumber fraud that took place in Ohio between Golden Fresh and Mastronardi Produce involving produce there.
[21] Lynne submits that her pleading is broad so that she can ask questions on examinations for discovery to determine if Luis and Mastronardi Produce engaged in wrongdoing in Ohio. If so, then Lynne asserts that wrongdoing in Ohio is probative of wrongdoing between the same parties in Ontario.
Analysis
[22] In my view, the rule that pertains to Luis’ motion is r. 25.11. In Carney Timber Company, Inc. v. Pabedinskas, 2008 ONSC 63163 Strathy J said at para. 15:
Rule 25.11 is to be contrasted with Rule 21.01(3)(d) which permits the court to dismiss an action which is frivolous or vexatious or an abuse of process. Rule 25.11 permits the court to surgically excise all or part of the offending pleading.
[23] Luis seeks to strike just three paragraphs in Lynne’s statement of claim as opposed to the entire statement of claim. Accordingly, r. 25.11 is the governing rule.
[24] Strathy J, in Carney Timber, at para. 16, set out the following relevant principles to take into account when dealing with a motion under r. 25.11:
- a fact that is relevant to a cause of action cannot be scandalous, frivolous or vexatious;
- a pleading that has no material facts is frivolous and vexatious;
- a pleading that is superfluous or can have no effect on the outcome of the action is scandalous, frivolous and vexatious;
- portions of a pleading that are irrelevant, argumentative, inserted only for colour or are bare allegations without material facts in support, will be struck as scandalous;
- a pleading that is purely argumentative will be struck out;
- a pleading that contains unfounded and inflammatory attacks on the integrity of a party, and speculative and unsupported allegations of defamation will be struck as scandalous and vexatious;
- a pleading may be struck on the ground that it may prejudice or delay the fair trial of the action where the probative value of the evidence would be outweighed by the time and effort involved and would seriously interfere with the fair and focused trial of the issues;
- striking a pleading on the ground that it may prejudice or delay the fair trial of an action is an exercise in discretion – the court must balance the added complexity of the pleading against the potential probative value of the facts alleged;
- pleadings that are replete with conclusions, expressions of opinion and contain irrelevant matters will be struck in their entirety; and
- pleadings that are clearly designed to use the judicial process for an improper purpose are an abuse of process – these include harassment and oppression of other parties by multifarious proceedings, the relitigation of issues previously decided and the litigation of matters that have been concluded.
[25] The trial of the issue that is to take place in December is to deal with the allegations of cucumber fraud and improvident contract between Golden Acre and Mastronardi Produce. These are the allegations that were pleaded by Lynne in her notice of application. As I understand the allegations, Lynne alleges that, following the parties’ separation, Luis underreported revenues of Golden Acre. He did so by falsely reporting an inflated number of extra small cucumbers. Extra small cucumbers are worth very little. The allegation of fraud is that the bulk of the reported extra small cucumbers were actually small and medium cucumbers that were paid for with funds that were not reported in the accounting records of Golden Acre, but rather were kept by Luis. Lynne makes other allegations that Luis breached his fiduciary obligations, but the major allegation relates to this alleged cucumber fraud.
[26] Paragraphs 7(e) and (i) of the statement of claim have nothing to do with the cucumber fraud, or Luis’ fiduciary relationship to Golden Acre. Instead, those paragraphs make allegations of wrongdoing involving Luis and Mastronardi Produce in their dealings with Golden Fresh in Ohio.
[27] Lynne asserts that the letter from Mr. Thieman has raised an issue of monies owing by Mastronardi Produce to Golden Fresh in Ohio. She asserts that there may be a similar fraud involving produce in Ohio that ought to be explored. She asserts that if that be the case, wrongdoing in Ohio is relevant to the allegation of wrongdoing in Ontario.
[28] I have difficulty with Lynne’s arguments. It seems to me that these two paragraphs are just the type of paragraphs that ought to be struck. They are superfluous and have no effect on the outcome of the cucumber fraud. They are irrelevant and inserted only for colour. They attack Luis’ integrity. They are speculative and unsupported allegations of defamation. I therefore find that these allegations are scandalous and vexatious and must be struck.
[29] In addition, the exploration of these allegations may very well prejudice or delay the trial that is now scheduled for December 3, 2018. The parties agreed to a very short timeline for the resolution of the cucumber fraud allegations. They did so as, until those allegations are resolved, they cannot move forward with the main issues in their respective applications, namely the request to purchase the other’s interest in the business. In the meantime, Luis must continue to manage the business without knowing whether he will ultimately own it. That situation cannot continue for any length of time without, in my view, prejudicing the business itself. The parties need to move forward with the trial of the issues expeditiously so as to deal with the real thrux of their applications.
[30] In addition to the foregoing, I note that there is ongoing litigation in Ohio involving Luis and Lynne’s nephew, Paul. There is a receiver appointed for Golden Fresh in Ohio. The allegations set out in paras. 7(e) and (i) are best left to be dealt with by the receiver appointed for Golden Fresh.
[31] Paragraph 7(f) of the statement of claim alleges that Luis accessed confidential and private emails of Paul. Paul is not a party to this action. Paul’s emails are the subject of a separate action commenced by Paul in October 2016. I cannot see how Paul’s private emails are relevant to the issues to be tried in December, particularly the allegations of cucumber fraud that are alleged to have taken place after Paul’s contract with Golden Acre was terminated. In my view, the pleading is irrelevant and inserted only for colour. It ought to be struck as scandalous.
Disposition
[32] For the foregoing reasons, I grant Luis’ motion to strike paras. 7(e), 7(f) and 7(i) of Lynne’s statement of claim.
[33] In the event the parties cannot agree on costs, they may make written submissions, including a costs outline and any relevant offers to settle, according to the following timeline:
Luis may make submissions within 20 days;
Lynne may make submissions within 20 days thereafter;
Luis may make reply submissions within 10 days thereafter.