Court File and Parties
COURT FILE NOS.: CV-14-00502291 CV-13-00480107 CV-12-00464522 CV-12-00461687 DATE: 20190606 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: STAN KATES BY HIS ESTATE REPRESENTATIVE BRENDA KATES, BRENDA KATES, KATES ADVERTISING LIMITED, ROBERT TURNER, JUDY TURNER, JOHN HOAR, MYRNA HOAR, JW HOAR INVESTMENT INC., JOHN CRITON, SHEILA CRITON, ERIC BUTLER, DAVID BUTLER and JANE BUTLER, Plaintiffs
AND:
TRAPEZE ASSET MANAGEMENT INC., TRAPEZE CAPITAL CORP., RANDALL ABRAMSON, HERBERT ABRAMSON, ADAM ABRAMSON and MIKHAIL VINOKUR, Defendants
AND RE: DAVID ROSE, THE LOUIS LEVIN FOUNDATION, PAMELA SIEKIERSKI, AUDREY LOEB as trustee for DAVID ROSS, KENNETH BROOKE, CAROLYNE KERR, THE ESTATE OF JEAN DEPORTER and DEPORTER TECHNICAL SERVICES INC., Plaintiffs
AND:
TRAPEZE ASSET MANAGEMENT INC., TRAPEZE CAPITAL CORP., RANDALL ABRAMSON, HERBERT ABRAMSON, ADAM ABRAMSON and MIKHAIL VINOKUR, Defendants
AND RE: ROBERT FAFARD, SYLVIA FAFARD, THE JAMES F. BOUGHNER FOUNDATION, DOUGLAS DEPORTER, GLORIA PRATT, GORDON JONES, BARBARA JONES, SYLLIN PHARMACY LTD., ROBERT SPIEGEL, RENEE SANANES, LEACH NATTRASS CAMPBELL, BEVERLEY CURTIS, ERNEST HARRIS, 117827 CANADA INC., 458636 BC LTD., MICHAEL LABIAK, CHRISTINE LABIAK, FAYE PARASCANDALO, FIONA PARASCANDALO, JENNA PARASCANDALO, JENNIFER KEILTY, BRYON FRIESEN, IBBOTT DENTAL, THOMAS JAMIESON, DAWN JAMIESON, IAN JAMIESON, 766347 ONTARIO LTD., DR. R. J. PARASCANDALO MEDICINE CORPORATION, CHARLES GRAVER, THE GRAVER IRREVOCABLE GIFTING TRUST, TUT HOLDINGS LTD., MICHAEL READ and JAON READ, Plaintiffs
AND:
TRAPEZE ASSET MANAGEMENT INC., TRAPEZE CAPITAL CORP., RANDALL ABRAMSON, HERBERT ABRAMSON, ADAM ABRAMSON and MIKHAIL VINOKUR, Defendants
AND RE: MALCOLM NATTRASS, SHARON NATTRASS, CLAUDE IBBOTT, LOUISE IBBOTT, ROBERT BEECHINOR, RONALD BOLTON, MICHAEL CHANGE, DAVID STRINGER, GABRIELLA CREMONESE, LOUIE GENOVA, GIULIA GENOVA, MARTINE GODDARD, DONALD GRANASTEIN, JOAN GRANATSTEIN, DENNIS GRAY, WENDY GRAY, DENNIS GRAY PROFESSIONAL CORPORATION, KI-CHUL LEE, 994445 ONTARIO INC., JEANIE SEWARD-MAGEE, ROBERT MAGEEE, JUDY MOOLLA, RICHARD PARASCANDALO, EDMUND PEARSON, LEWIS ROSE, JANE SHAPIRO, JIT SINGH, DR. J. SINGH INC., BHUPINDER KANG, THE TALBOT FAMILY TRUST, JACK FRIEDMAN and CHERYL FRIEDMAN, Plaintiffs
AND:
TRAPEZE ASSET MANAGEMENT INC., TRAPEZE CAPITAL CORP., RANDALL ABRAMSON, HERBERT ABRAMSON, ADAM ABRAMSON and MIKHAIL VINOKUR, Defendants
BEFORE: Cavanagh J.
COUNSEL: Ronald Podolny, for the Plaintiffs Allan Sternberg and Emily Hives, for the Defendants
HEARD: May 7, 2019
Endorsement
Introduction
[1] The defendants move for an order striking out the statement of claim in each of four related actions as against the defendant Adam Abramson on the ground that the statements of claim, as supplemented by particulars, disclose no reasonable cause of action against him.
[2] For the following reasons, I grant the defendants’ motion and strike out the four statements of claim as against Adam Abramson. Leave is granted to the plaintiffs to amend the statements of claim.
Procedural background
[3] There are four separate actions commenced against the defendants by different groups of plaintiffs. I identify each action by the name of the first named plaintiff.
[4] The Nattrass action was commenced by notice of action issued on August 20, 2012 (and a statement of claim filed on September 19, 2012). The Fafard action was commenced by a notice of action issued on September 28, 2012 (and a statement of claim filed on October 25, 2012). The Kates action was commenced by statement of claim issued on April 15, 2014. The Rose action was commenced by statement of claim issued on May 10, 2013.
[5] There are two corporate defendants, Trapeze Asset Management Inc. and Trapeze Capital Corp. There are four individual defendants, Randall Abramson, Herbert Abramson, Adam Abramson (“Adam”) and Mikhail Vinokur.
[6] In the statements of claim, the plaintiffs allege that, contrary to the representations made to them and in violation of the applicable rules and industry duties, the defendants knowingly invested all of the plaintiffs’ investment capital in portfolios comprised almost entirely of non-diversified, high risk small capitalized commodity-based companies. The plaintiffs allege that when the losses began to mount, the defendants failed to reduce the plaintiffs’ exposure, further exacerbating losses allegedly suffered by the plaintiffs. The plaintiffs plead that the defendants’ high risk investment strategy caused the plaintiffs substantial damages. The plaintiffs claim damages against the defendants for investment losses suffered as a result of negligence, negligent misrepresentation, breach of fiduciary duty, inducing breach of fiduciary duty, conspiracy, breach of contract and inducing breach of contract on the part of the defendants.
[7] In the statements of claim, Adam is described as a Vice-President and Chief Compliance Officer for Trapeze Asset Management and a portfolio manager for both Trapeze Asset Management and Trapeze Capital Corp. The plaintiffs plead that at all material times, Adam, together with Randall Abramson and Herbert Abramson, were the operating and directing minds of Trapeze Asset Management and had ultimate authority and responsibility for the management and oversight of the operations of Trapeze Asset Management. The plaintiffs plead that the corporate defendants are responsible in law for the acts and omissions of Adam and the other individual defendants, and that the corporate defendants are vicariously liable for the acts and omissions of Adam and the other individual defendants.
[8] In the statements of claim, the plaintiffs plead that on April 27, 2012 the Ontario Securities Commission (“OSC”) approved a settlement agreement between OSC staff and Trapeze Asset Management, Randall Abramson and Herbert Abramson (identified in the settlement agreement as the “Respondents”). The OSC settlement agreement was included in the materials filed by the plaintiffs for this motion. The OSC settlement agreement includes statements in relation to Randall Abramson and Herbert Abramson, but it does not include any statements that Adam managed accounts, provided investment advice to investors, made representations to investors, or acted as the operating and directing mind of Trapeze Asset Management.
[9] The plaintiffs also plead that on May 7, 2012 a hearing panel of the Investment Regulatory Organization of Canada (“IIROC”) approved a settlement agreement between IIROC staff and Trapeze Capital Corp., Randall Abramson and Herbert Abramson. The plaintiffs plead and rely upon these settlement agreements in respect of the causes of action alleged against the defendants in the statements of claim.
[10] The defendants demanded particulars of the allegations in the statement of claim on May 20, 2014 including particulars of which of the defendants engaged in the conduct alleged to give rise to the causes of action pleaded, and how they did so.
[11] The plaintiffs’ response was sent on March 3, 2015. In their response, the plaintiffs state that the allegations are sufficiently pleaded in the statements of claim and, further, the demands for particulars contain matters that would only be determined after discovery and not through particulars or pleadings. The plaintiffs responded that the demand for particulars request information which would be known by the defendants, details of which have not been disclosed to the plaintiffs. The plaintiffs provided additional particulars, but they did not identify Adam as having made any representations to any specific plaintiff. In respect of one plaintiff in the Nattrass action, Lewis Rose, the plaintiffs state that Mr. Rose received investment advice in person at the old Trapeze offices and, at this meeting, he met with Herbert Abramson, Randall Abramson and Adam, and received advice from Herbert Abramson and Randall Abramson. In the particulars provided with respect to the claim of Kenneth Brooke, one of the plaintiffs in the Rose action, the plaintiffs state that Mr. Brooke received investment advice from Herbert Abramson over the phone, and that he met only once with Adam. The plaintiffs’ response states in respect of Mr. Brooke’s claim that he expressed concern to Randall Abramson, Herbert Abramson and Adam over losses in his investments and he was advised that everything would be alright and he just needed to be patient.
[12] On April 15, 2015, the defendants requested further particulars as to which plaintiffs are pursuing claims against the individual defendants. The defendants pointed out that none of the particulars that had been provided identifies any representations or misrepresentations made by Adam. The plaintiffs responded on March 3, 2016 and advised that all plaintiffs are pursuing claims against Randall Abramson and Herbert Abramson. This response states that the details of which plaintiffs are pursuing claims against Mikael Vinokur were provided in earlier responses to demands for particulars. A table was provided which identified which plaintiffs were pursuing claims against Mr. Vinokur. The plaintiffs provided particulars of the dates on which each plaintiff expressed concerns to the defendants over losses in their accounts, and particulars of the cause of action for conspiracy in which they alleged that the defendants had conspired to act by unlawful means to cause injury to the plaintiffs, without identifying specific representations made or acts taken by Adam (or other defendants).
[13] On April 13, 2016, the defendants again asked for particulars of which plaintiffs are pursuing claims against Adam. The defendants noted that none of the particulars provided identifies any representations or misrepresentations made by Adam. The plaintiffs responded on June 30, 2016 and advised that the claims have been sufficiently particularized such that the defendants can file their statement of defence. On February 9, 2017 the plaintiffs provided a supplementary response to demand for particulars which did not identify any particular representations made by Adam or other conduct particular to Adam.
[14] A case conference was held on September 20, 2017 at which counsel agreed to address outstanding issues including the defendants’ demand for particulars and completing pleadings.
[15] On January 3, 2018, the plaintiffs provided additional responses to the demand for particulars. The plaintiffs’ response included a table which identified client groups and included statements of the persons from whom particular clients received investment advice. In respect of one plaintiff, Lewis Rose, Adam is listed (in respect of the “first meeting”). Adam is not listed in the table in respect of any other plaintiff. In this table, the plaintiffs state that Kenneth Brooke received investment advice from Herbert Abramson. In a separate table described under the heading “Investment Advice Oral Representations”, Adam is listed as a defendant in respect of the particulars provided for the claim of Lewis Rose and, although there are specific factual allegations with respect to Randall Abramson and Herbert Abramson, there is no specific allegation that Adam made any particular representations to Mr. Rose. In this table, in respect of the claim of Kenneth Brooke, Herbert Abramson is listed as the relevant defendant and the representations described allege that Herbert Abramson told him “he should not worry”, but they do not refer to Adam.
[16] A case conference was held on February 6, 2018 to discuss scheduling and procedure. The defendants agreed to deliver statements of defence by March 31, 2018. At this case conference, I also agreed to set a date for a rule 21 motion with respect to the claims against Adam.
[17] The defendants’ statements of defence were served on or about March 29, 2018.
[18] There were some difficulties with respect to scheduling a date for this motion. The motion was scheduled to be heard on May 6, 2019 and the motion materials were served on April 12, 2019.
Analysis
[19] The defendants move to strike out the statements of claim as against Adam pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure which provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action.
[20] The test on a motion to strike out a statement of claim under rule 21.01(1)(b) is whether it is plain and obvious that the statement of claim discloses no reasonable cause of action. The facts as pleaded are deemed to have been proven for the purposes of the motion unless they are patently incapable of proof. If the action is certain to fail because it contains a radical defect, the statement of claim should be struck out. See Hunt v. T & N plc, 1990 SCC 90, [1990] 2 S.C.R. 959 at para. 36; Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 17.
[21] The defendants submit that the statements of claim as against Adam, as supplemented by the particulars provided, disclose no reasonable cause of action and should be struck out as against him.
[22] The plaintiffs submit that the statements of claim disclose numerous allegations against Adam as part of the allegations against all defendants. They submit that it is not necessary to identify in the statements of claim any action or actions that Adam undertook, separate and apart from other defendants, in order for the statements of claim to disclose reasonable causes of action against Adam. The plaintiffs submit that further facts regarding Adam’s specific involvement in the management of the plaintiffs’ assets will emerge in the course of the litigation and that it would be inappropriate and procedurally unfair for the statements of claim to be struck out at this stage. The plaintiffs submit that if, in the course of the litigation, Adam’s lack of involvement in the alleged misconduct becomes apparent, it will be open to the defendants to bring a motion for summary judgment and seek to dismiss the actions as against Adam.
[23] In their factums, the defendants and the plaintiffs made submissions with respect to the causes of action pleaded against Adam for negligence (and negligent misrepresentation), breach of fiduciary duty, breach of contract, and conspiracy. The plaintiffs did not make submissions to support the adequacy of the statements of claim in respect of causes of action pleaded against Adam for inducing breach of fiduciary duty and inducing breach of contract. The statements of claim suffer from the same inadequacies in respect of these causes of action as they do for the causes of action that were the subject of submissions, which I address below.
Claim for negligence and negligent misrepresentation
[24] The plaintiffs submit that they have sufficiently pleaded material facts that disclose that (i) the defendants owed each plaintiff a duty of care, (ii) they failed to meet the required standard of care, (iii) the plaintiffs suffered compensable damages as a result of the defendants’ breach of the duty of care, (iv) the damages were caused in fact by the defendants’ breach, and (v) the damages are not too remote in law. The plaintiffs submit that the factual allegations against Adam through pleadings of acts and omissions by the defendants collectively is sufficient because Adam would know the case which is alleged against him.
[25] In support of this submission, the plaintiffs rely upon the decision of Perell J. in Jevco Insurance Company v. Pacific Assessment Centre Inc., 2014 ONSC 2244. In Jevco, certain defendants moved to strike out the plaintiff’s statement of claim for failure to disclose a reasonable cause of action. With respect to the claim pleaded in conspiracy, Perell J. addressed at paras. 58-59 the submission that the allegations were improper because they were made against groupings of defendants:
In the case at bar, the allegations of conspiracy are made against various groupings of defendants and there is no pleading of what each individual defendant in each grouping did in particular. However, the particulars of the conspiracy alleged against each group are sufficient to give notice to each individual defendant of what their role was in the conspiracy. They are all in a position to admit or deny their role in the alleged conspiracy.
The pleadings principle that it is improper to lump the defendants together must be applied in a way that respects the underlying principle that the pleading must disclose to each individual defendant the case be made against them. Thus, in a given case, it may not be inappropriate to group the defendants. In my opinion, in the case at bar, the approach of Jevco of grouping the Defendants while not eloquent was adequate.
[26] In CIT Financial Ltd. / Services Financiers CIT Ltée v. Sharpless, Mesbur J. addressed the general framework of pleadings in the context of a motion to strike out a statement of claim:
In addressing the pleading as a whole, it is helpful to keep in mind the general framework of pleadings, namely, that facts must be pleaded “so that the causes of action are clearly identifiable and are supported by the facts material to the establishment of those causes.” [Citation omitted] In addition, the pleading must adequately identify the roles allegedly played by the various defendants in relation to each cause of action, and must state both how the individual defendants have harmed the plaintiff, and what the nature of that harm is. [Citation omitted]
With respect to a pleading of negligent misrepresentation, Mesbur J. in CIT Financial quoted at para. 24 from the decision of Low J. in Lysko v. Braley, [2004] O.J. No. 4727:
To plead a claim of negligent misrepresentation, the plaintiff must set out with sufficient particularity of the alleged misrepresentation, who made it, to whom it was made, the occasion and manner in which was made, the falsity of the representation, the inducement, the intention on the part of the represent tour that the represent to rely on the representation, alteration by the representee of his position in reliance on the representation, and the resulting damage. [references omitted]
[27] In their statements of claim and in the particulars provided, the plaintiffs have not pleaded facts that adequately identify the role allegedly played by Adam in relation to the causes of action founded in negligence and in negligent misrepresentation. Adam would not know from the statements of claim and the particulars provided, with sufficient particularity, the role that he held in relation to the plaintiffs, the actions he allegedly took, the omissions for which he is allegedly responsible, or the misrepresentations that he is alleged to have made that disclose the case against him.
[28] It is plain and obvious that the statements of claim, supplemented by the particulars, disclose no reasonable cause of action against Adam in negligence or for negligent misrepresentation.
Claim for breach of fiduciary duty
[29] In the statements of claim, the plaintiffs plead that the defendants owed a fiduciary duty to the plaintiffs by virtue of, among other things, their dependence on and vulnerability to the defendants with respect to the investment strategies and securities recommended in the accounts, and the carrying out of transactions. The plaintiffs plead that a fiduciary duty arose as a result of the complete discretion that the defendants exercised over the plaintiffs’ investment portfolio as Portfolio Managers, which comprised a significant component of the plaintiffs’ assets and net worth. The plaintiffs plead that they were completely dependent upon and vulnerable to the defendants with respect to information and advice concerning investments, reasonable portfolio management in accordance with their investment objectives, the exercise of discretion over accounts and the proper supervision of accounts and proper management of the investment portfolio. The plaintiffs plead that the defendants breached their fiduciary duties.
[30] To support a claim for breach of fiduciary duty, the plaintiffs must plead sufficient facts to show a relationship between them and Adam with the following attributes: (a) of the alleged fiduciary has scope for the exercise of some discretion or power over the plaintiff; (b) that power or discretion can be exercised unilaterally so as to affect the beneficiary’s legal or practical interest; and (c) the plaintiff has a peculiar vulnerability to the exercise of that discretion or power. Put another way, the beneficiary is at the mercy of the fiduciary holding the discretion or power: CIT Financial at para. 33.
[31] In their statements of claim and in the particulars provided, the plaintiffs do not plead facts with respect to Adam’s relationship with them, other than by including him among the defendants. There is no pleading that Adam had any ability to exercise any particular power over them and there are insufficient particulars to allow Adam to understand how a relationship of proximity arose, and what its attributes were. See CIT Financial at paras. 36-39, 41.
[32] It is plain and obvious that the facts alleged in the statements of claim with respect to Adam, as supplemented by the particulars, are insufficient to disclose a reasonable cause of action against him for breach of fiduciary duty.
Claim for breach of contract
[33] In the statements of claim, the plaintiffs plead in respect of various plaintiffs or groups of plaintiffs that they opened accounts and, in respect of many plaintiffs, the statements of claim plead that accounts were opened with Trapeze Asset Management. The plaintiffs do not plead that any of them entered into a contractual relationship with Adam.
[34] With respect to the terms of the contractual arrangements, the plaintiffs plead:
It was an express and implied term of the contractual arrangement between the Plaintiffs and the Defendants that the accounts would be managed in accordance with the professional standards and in conformity with all internal corporate, industry and regulatory standards applicable for trading and managed accounts. The Plaintiffs plead that the Defendants breached the terms of such contracts on the basis of the facts pleaded herein.
[35] The statements of claim do not include allegations of fact which, assuming they are true, support the existence of a contract made with between the plaintiffs, or any of them, with Adam. It is not sufficient for the plaintiffs to allege that they “opened accounts”, and then to plead that there was a contractual arrangement between a plaintiff and “the Defendants”. The statements of claim lack material facts insofar as the causes of action against Adam for breach of contract are concerned.
[36] It is plain and obvious that the statements of claim as supplemented by the particulars disclose no reasonable cause of action for breach of contract against Adam.
Claim for conspiracy
[37] In their statements of claim, the plaintiffs plead that the defendants acted together and conspired to induce clients to invest their savings with Trapeze Asset Management, conspired to misrepresent their investment strategy in order to induce clients to invest, and conspired to misrepresent that the market decline and significant losses clients were seeing in their portfolios had nothing to do with their investment strategy. The plaintiffs plead that these actions also consisted of a breach of contract and fiduciary duty or induced other defendants to breach their contracts or fiduciary duties as registered persons under Ontario securities law, as compliance officers, and/or as directors.
[38] In the particulars provided, the plaintiffs grouped the defendants together, and no particular allegations were made against Adam that disclosed overt acts that he took in furtherance of the alleged conspiracy.
[39] In an action founded in civil conspiracy, it is not sufficient for the plaintiff to allege that the defendants conspired together intentionally to harm the plaintiff. The statement of claim must include, with clarity and precision, particulars of (i) the parties and their relationships, (ii) the agreement to conspire, (iii) the precise purpose or objects of the alleged conspiracy, (iv) the overt acts that are alleged to have been done by each of the conspirators, and (v) the injury and particulars of the special damage suffered by the plaintiffs by reason of the conspiracy: Aristocrat Restaurants Ltd. v. Ontario at paras. 40, 44.
[40] In the statements of claim as supplemented by the particulars, the plaintiffs do not plead with clarity and precision facts that are necessary to sustain a cause of action for conspiracy against Adam. It is plain and obvious that the statements of claim, as supplemented by the particulars, disclose no reasonable cause of action against Adam.
[41] With respect to this motion generally, the plaintiffs submit that the precise details of Adam’s involvement in the management of the plaintiffs’ investments will emerge as the litigation progresses, and if in the course of this litigation Adam’s lack of involvement in the alleged misconduct becomes apparent, it will be open to the defendants to bring a motion for summary judgment and seek to dismiss this action as against Adam.
[42] I disagree that this is the proper approach to a motion such as this. There is no obligation on Adam at this stage to show that he was not involved in the misconduct alleged generally against all defendants. The plaintiffs are required to plead material facts that are sufficient to disclose the causes of action pleaded as against Adam. If they are not able to do so, then Adam should not be required to remain as a defendant and be called upon to defend a claim which has not been properly pleaded.
What is the effect of the timing of this motion?
[43] Rule 21.02 of the Rules of Civil Procedure provides that a motion under rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs.
[44] The plaintiff’s submit that Adam’s motion was brought many years after the allegations against him were first pleaded, and that the motion is a delay tactic.
[45] In this case, although the statements of claim were issued in April 2014, there were several requests for particulars and particulars were provided. The last set of particulars were not provided until January 3, 2018. The defendants expressed an intention to bring this motion soon after these particulars were provided. In the circumstances, the timing of Adam’s motion is not a factor that should influence the outcome of the motion.
Should the plaintiffs be granted leave to amend the statements of claim?
[46] The plaintiffs request, in the alternative, that they be granted leave to amend their statements of claim. The defendants submit that they have requested particulars of the claims against Adam since 2012, and that leave to amend should not be granted.
[47] In Aristocrat, Epstein J. confirmed at para. 85 the principle that leave to amend should only be refused in the clearest of cases.
[48] I am not satisfied that this case is one where leave to amend should be denied. I grant the plaintiffs leave to amend the statements of claim, if so advised.
Disposition
[49] The defendants’ motion is granted and the statements of claim in the four actions are struck out as against Adam. The plaintiffs are granted leave to deliver amended statements of claim if so advised. These are to be delivered within 45 days.
[50] If the parties are unable to agree on costs, the defendants may make written submissions within 10 days. The plaintiffs may make responding submissions in writing within 10 days thereafter. The defendants may make brief reply submissions, if so advised, within five days thereafter.
Cavanagh J. Date: June 6, 2019