Court File and Parties

Court File No.: CV-22-00690307-00CL Date: 2023-06-14 Superior Court of Justice - Ontario

Re: ACTRA PERFORMERS’ RIGHTS SOCIETY, Plaintiff/Respondent And **Re:**SOUND, LOU RAGAGNIN, ARIF AHMAD, DENIS DINSMORE, OTIS QUINN, DORIS TAY, STEVE TEIXEIRA, THIAGO KURTZ and MARCEL DELUCA, Defendants/Moving Parties

Before: Kimmel J.

Counsel: David Lederman / Dan Block for the Plaintiff/Respondent Mark Gelowitz, Lauren Tomasich, Elie Farkas, Andrea Korajlija, for the Management Defendants/Moving Parties, Lou Ragagnin, Arif Ahmad, Denis Dinsmore, Otis Quinn and Doris Tay John Picone, Jessica Zagar for the Major Label Director Defendants/Moving Parties, Steve Teixeira, Thiago Kurtz and Marcel DeLuca

Heard: April 6, 2023

Endorsement (Rule 21 motions to strike claims against individual defendants)

The Motions and the Pleading

The Motions

[1] The individual defendants, comprised of the Management Defendants and the Major Label Director Defendants, move under rr. 21.01(1)(b) and 25.11(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) to strike the oppression claims that ACTRA Performers’ Rights Society (“ACTRA PRS”) asserts against the individual defendants for disclosing no reasonable cause of action or constituting an abuse of process.

The Parties

[2] The parties, and their relationships to each other, are described in the Amended Statement of Claim dated January 18, 2023 and originally issued November 16, 2022 (the “Statement of Claim”).

[3] The individual “Management Defendants” are the current senior management team of Re:Sound: the president, chief executive officer, general counsel, vice-president of finance and administration, vice-president of technology and vice-president of distribution. The “Major Label Director Defendants” are the three current members of Re:Sound’s board of directors (the “Board”) who were nominated by their employers, who are three major Canadian record labels: Sony Music Entertainment Canada, Warner Music Canada Co. and Universal Music Canada Inc. (the “Major Labels”).

[4] Re:Sound is a not-for-profit organization governed by the Canada Not-for-Profit Corporations Act, S.C. 2009, c. 23 (“NFPCA”). Re:Sound is a “collective society” under Part VII.1 of the Copyright Act, R.S.C. 1985, c. C-42 which, among other things, collects and distributes equitable remuneration on behalf of performers and makers of sound recordings in accordance with tariffs certified by the Copyright Board of Canada.

[5] Re:Sound is comprised of two types of member organizations (“Member Organizations”): record labels and member collectives, including artist and performer collectives like ACTRA PRS. Re:Sound’s Board is made up of twelve nominees from its eight Member Organizations. Six of those nominees represent recording artist and performer collectives and the other six represent record labels. There is a thirteenth member of the Board who serves as the independent chair and does not have the right to vote.

[6] ACTRA PRS, like Re:Sound, is governed by the NFPCA. It is an artist and performer member collective (“Member Collective”) and a Member Organization of Re:Sound that represents different artists who perform in audiovisual productions and on sound recordings in Canada. Like Re:Sound’s other Member Collectives, ACTRA PRS receives distributions of equitable remuneration from Re:Sound which it, in turn, distributes to its members.

The Oppression Claims Pleaded

[7] The oppression claims against Re:Sound and the individual defendants are pleaded in the Statement of Claim under s. 253 of the NFPCA, which contains language that is substantially the same as the oppression remedies under s. 248 of Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16 and s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

[8] The essence of ACTRA PRS’ complaint is that the individual defendants, through their actions and inactions, caused Re:Sound:

a. to expand its mandate and core business to unfairly compete with ACTRA PRS by distributing equitable remuneration directly to certain rightsholders who have not assigned their neighbouring rights to ACTRA PRS or any of Re:Sound’s other Member Collectives (“Direct Assignors”);

b. not to adopt a professionally recommended fee policy pertaining to the fees charged to and collected from Direct Assignors;

c. not to implement technological enhancements or other means to more equitably distribute royalties to the Member Organizations, resulting in more favourable treatment to the Major Labels; and

d. not to carry out its mandate to “implement, effectively advocate for or properly enforce tariffs”, particularly in respect of streaming services, to the benefit of the Major Labels and to the detriment of the Member Collectives.

The Moving Defendants’ Position

[9] The individual defendants argue that the plaintiff’s claims do not provide sufficient particularity about how they are individually implicated in the alleged oppression to disclose a cause of action against them personally. The plaintiff’s claim rests upon the manner in which Re:Sound’s business has been conducted generally by its management and the Board over a lengthy period of more than ten years. However, this period is far longer than most of the individual defendants have been directors or officers. Further, the individual defendants contend that the plaintiff has only named them for the ulterior purpose of trying to keep them from participating in Re:Sound’s litigation strategy and defence of this action.

[10] The individual defendants, some of whom (e.g., the Management Defendants) are also represented by the same law firm that represents Re:Sound, do not challenge the viability of the oppression claims as against Re:Sound from a pleadings perspective. To the contrary, they say that all the pleaded claims can still remain in support of the oppression claims against Re:Sound, including the allegations involving corporate steps and activities that they directed.

[11] Although their notices of motion and factum ask that certain paragraphs in the Statement of Claim that assert claims against them be struck without leave to amend, they clarified during oral argument that the individual defendants seek only to have themselves removed as defendants, to have any relief claimed against them personally struck and to have the action dismissed as against them. They acknowledge that they would be bound to cause Re:Sound to abide by any order made by the court against Re:Sound, even if the claims against them personally are struck and even if the court does not make any separate order against them personally. They maintain that there is no relief that the plaintiff seeks that cannot be obtained through the pursuit of its claims against Re:Sound and no reason to keep them in the action.

Summary of Outcome

[12] It is a high bar for a defendant to succeed on a Rule 21 motion to have a plaintiff’s claim struck. It is an even higher bar for that order to be granted without leave to amend, as the moving defendants seek in this case. The motions by the individual defendants are dismissed for the reasons that follow.

[13] The theory of the oppression claims as against Re:Sound is unchallenged. Thus the theory, to the extent it involves actions or inactions of the individual defendants, may be extended to them as well. Although the claims against the individual defendants may be focused on a course of conduct that each individual defendant was not personally involved in throughout its entire duration, there is sufficient particularity in the claims to implicate each of them in the oppressive course of conduct. The pleading provides examples of specific decisions or recommendations that were made, that resulted in action or inaction by Re:Sound, during the time frame in which each of the individual defendants was involved.

[14] Further, there are allegations that the oppressive course of conduct is continuing and being perpetuated by them in their current roles. Lastly, damages are sought from them personally. The relief sought is not solely to require them to cause the corporation to take whatever steps or actions it is ordered to.

[15] I am not satisfied that the plaintiff’s claims against the moving defendants have no chance of success. The high onus has not been met for the claims against the individual Management Defendants and Major Label Director Defendants to be dismissed without leave to amend at this early stage of the proceeding.

The Test on a Rule 21 Motion

Rule 21: Generally

[16] When a party brings a motion under r. 21.01(1)(b) they must demonstrate that there is no reasonable cause of action pleaded against them. The test is whether, assuming the facts as pleaded are true, it is “plain and obvious” that the statement of claim or defence does not demonstrate a reasonable prospect for succeeding at trial. See Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at para 36; Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 17 and 21.

[17] The approach must be generous and err on the side of permitting the claim to proceed to trial. See FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92, at para. 35.

[18] As a result, a claim will only be struck when it is certain to fail because it contains a “radical defect.” See Hunt, at para. 36. The impugned allegations are to be read generously, with allowances for any inadequacies due to drafting deficiencies. See Nash v. Ontario (1995), 27 O.R. (3d) 1, at para. 11. In other words, if there is a chance for success, the claim should not be struck out. See Hunt, at para. 36.

[19] Indeed, the threshold for sustaining a pleading under r. 21.01(1)(b) “is a very, in fact extremely, low one.” See TD Asset Management Inc v. Repap Enterprises Inc. [2000] O.J. No. 2250 (Ont. S.C.), at para. 12; see also Hanson v. Bank of Nova Scotia (1994), 19 O.R. (3d) 142, at para. 8.

[20] Conversely, the defendants are entitled to some particulars of the claim they must meet. Bare allegations and conclusory legal statements based on assumption or speculation are not treated as proven and may be struck out. See Das v. George Weston Limited, 2017 ONSC 4129, at para. 17, aff’d 2018 ONCA 1053, 43 E.T.R. (4th) 173, leave to appeal refused, [2019] S.C.C.A. No. 69; see also Taylor v. Chair Source, 2023 ONSC 211, at para. 4. Bare allegations and conclusions are not considered material facts that would be presumed true on a Rule 21 motion. See Hovsepian v. Westfair Foods Ltd., 2001 ABQB 700, 95 Alta. L.R. (3d) 331, at para 29; Balanyk v. University of Toronto (1999), 1 C.P.R. (4th) 300 (Ont. S.C.), at para. 29; Price v. Smith & Wesson Corp., 2021 ONSC 1114, 154 O.R. (3d) 675, at para. 51.

[21] If the pleading does not provide a sufficient level of particularity, the court must still consider whether any defect in the statement of claim that is identified can be addressed through a pleading amendment. See Tran v. University of Western Ontario, 2015 ONCA 295, at paras. 26-27.

Rule 21: Oppression Claims

[22] When considering the sufficiency of a pleaded oppression claim, the court must look to the statement of claim to determine whether the required elements of such a claim have been alleged, namely whether the statement of claim: (i) identifies the reasonably held expectations the plaintiff claims to have been violated by the conduct at issue; and (ii) asserts that these reasonable expectations were violated by conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director, officer or member of the corporation. See Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R. 1037, at para. 24.

[23] It has been recognized that, since a corporation can only act through human agencies (such as its directors and officers), it does not follow that those individuals may be sued in their personal capacities any time the oppression remedy is properly engaged in respect of a corporation. See Budd v. Gentra Inc. (1998), 43 B.L.R. (2d) 27 (Ont. C.A.), at paras. 21 and 43. Simply effecting corporate steps is not in and of itself a sufficient basis for an oppression claim against an individual. Badesha v. Cronos Group, 2021 ONSC 4346 at para 96-97, rev’d on other grounds in 2022 ONCA, 663, 163 O.R. (3d) 481, citing Budd at para. 43: “The further question whether the director or officer should be required to rectify that oppression personally is determined by all of the circumstances including the nature of the oppression, the gain if any which flowed to the director or officer, and the effects of other possible orders on other security holders.”

[24] Wilson is the leading authority in Canada on the personal liability for officers and directors facing oppression claims. It adopted and followed Budd which, unlike Wilson, was a pleadings case. The test laid down by the Court of Appeal for Ontario in Budd, at para. 47 for deciding whether an oppression action reveals a cause of action against directors and officers personally, as clarified by the Supreme Court of Canada in Wilson, at paras. 32, 47, and 48, requires that:

a. The alleged oppressive conduct be attributed to the individual “because he or she is implicated in the oppression.” There must be acts pleaded against specific directors or officers which, taken in the context of the entirety of the pleadings, could provide the basis for finding that the corporation acted oppressively – did the director or officer exercise, or fail to exercise, his or her powers so as to effect the oppressive conduct?

b. The imposition of personal liability be fit in all of the circumstances. There must be a reasonable basis in the pleadings on which a court could conclude that the imposition of personal liability (e.g. an order against the director or officer personally) is fit in all of the circumstances such that the oppression remedy is a fair way of dealing with the situation, because:

i. The directors/officers obtained a personal benefit from their conduct.

ii. The directors/officers increased their control of the corporation by the oppressive conduct.

iii. The directors/officers breached a personal duty they have as directors.

iv. The directors/officers misused a corporate power.

v. A remedy against the corporation would prejudice other security holders.

[25] Not all these indicia must be present for an oppression claim to succeed against individual officers and directors. This is a non-exhaustive list of factors that could be considered under the second prong of the test for an oppression claim against individual directors and officers. See Wilson, at para. 50.

[26] The individual defendants also contend that the question of whether the oppression remedy is a fair way of dealing with the situation is only one of four general principles that are to be considered in the context of oppression claims against individual officers and directors: see Wilson at para. 49. They maintain that some other general principles that are applicable in this case and should be considered in the analysis are that: an oppression remedy “should go no further than necessary to rectify the oppression” and must not serve “a purely tactical purpose.”

The Pleaded Claims

[27] To decide this motion, the factual assertions in the Statement of Claim are assumed to be true. They must be read generously and purposively, having regard to the pleading as a whole and the entire context of the pleaded claims.

Relief Claimed Against the Individual Defendants

[28] The plaintiff seeks declaratory relief regarding the alleged oppressive conduct of the defendants. It also seeks an order compelling the defendants to cause Re:Sound to take certain steps in relation to the alleged oppressive conduct, including to cause Re:Sound to:

a. cease competing against Member Collectives like ACTRA PRS and instead promote them to unsigned neighbouring rightsholders;

b. apply the recommended fee policies and distribute royalties to Member Organizations in accordance with the existing policies;

c. enforce existing tariffs and work to improve them legislatively; and

d. make various specified corporate governance changes.

[29] While the Statement of Claim may be long and the prayer for relief may have multiple sub-paragraphs, reading it generously as it must be for purposes of this motion, it is seeking damages from all of the defendants jointly and severally. It goes on to specify that damages are sought “of at least $43,100,000, or such other amount to be proven at trial, to be paid by Re:Sound (as applicable) only out of reserves generated by Royalties collected on behalf of and due to Direct Assignors and the Major Labels”.

[30] The caveat in the latter part of this sentence, read generously, does not, as the individual defendants argue, detract from the claim for damages from all defendants jointly and severally. It is simply clarifying that whatever Re:Sound is ordered to pay should not be paid out of the pockets of the plaintiff of other Member Collectives.

The Pleaded Oppression Claims

[31] The defendants are all alleged to have breached s. 253 of the NFCA, which states as follows:

253. (1) On the application of a complainant, a court may make an order if it is satisfied that, in respect of a corporation or any of its affiliates, any of the following is oppressive or unfairly prejudicial to or unfairly disregards the interests of any shareholder, creditor, director, officer or member, or causes such a result:

(a) any act or omission of the corporation or any of its affiliates;

(b) the conduct of the activities or affairs of the corporation or any of its affiliates; or

(c) the exercise of the powers of the directors or officers of the corporation or any of its affiliates.

[32] The plaintiff alleges that the individual defendants’ wrongful conduct was that they exercised their powers as directors and officers to cause Re:Sound to oppress ACTRA PRS, in breach of their duties to Re:Sound. In that sense, the individual defendants are implicated in the conduct of Re:Sound that is alleged to have been oppressive and unfairly prejudicial to, and that unfairly disregarded, the interests of ACTRA PRS.

[33] Further, it is alleged that the actions and inactions of the individual defendants were motivated by their pursuit of their separate interests for personal gain and benefits. That being the interests of:

a. the Management Defendants in improving their reputations and enhancing their remuneration; and

b. the Director Defendants in advancing the objectives and interests of their employers, the Major Labels and their own job security, remuneration and advancement within the Major Labels.

[34] ACTRA PRS pleads (see for example, paragraph 135 of the Statement of Claim) that it reasonably expected the individual defendants not to favour their own interests (or any other group’s interests) over its interests in breach of their fiduciary duties to Re:Sound. ACTRA PRS also asserts that it reasonably expected the Management Defendants would pursue and advance Re:Sound’s mandate and follow the clear directives of the Board and only exercise the authority provided to management by the Board. The Board, for its part, was expected to keep management in check and ensure that they were not acting outside of their authority or causing Re:Sound to stray outside of its mandate.

[35] The following pleas are said to encapsulate the plaintiff’s oppression remedy claims:

[91] Re:Sound has oppressed the interests of ACTRA PRS in the following two primary ways, which will be further detailed at trial:

(a) Re:Sound has engaged and continues to engage in direct competition with [Member Collectives] and has taken and continues to take actions that have the effect of eroding their market share in the distribution business, while at the same time diverting Re:Sound’s efforts away from its core functions resulting in poor performance in fulfilling its mandates; and,

(b) Re:Sound has failed to implement, effectively advocate for or properly enforce tariffs, especially streaming tariffs, despite its clear mandate to do so.

[92] In respect of both of the above-mentioned categories, Management and the Major Label Directors have caused, facilitated and/or enabled Re:Sound’s conduct to be oppressive or unfairly prejudicial to or to unfairly disregard the interests of ACTRA PRS. In doing so, Management and the Major Label Directors are in breach of their fiduciary duties to act in the best interest of Re:Sound.

[36] The plaintiff provides examples of actions or inactions by the individual defendants in furtherance of the alleged oppressive conduct: (i) the expansion of Re:Sound’s mandate into direct competition with the Member Collectives through dealings with Direct Assignors and the adoption of a new fee policy that favours Direct Assignors; (ii) and the selection of a new IT system that is favourable to the arrangements with Direct Assignors and less favorable to the needs of the Member Collectives, discussed in more detail below.

The Pleaded Claims Against the Management Defendants

[37] The Management Defendants are:

a. Lou Ragagnin, the president and chief executive officer appointed in 2020;

b. Arif Ahmad, the vice president corporate and legal affairs and general counsel appointed in 2010;

c. Denis Dinsmore, the vice president finance and administration appointed in 2021;

d. Otis Quinn, the vice president technology appointed in 2007; and

e. Doris Tay, vice president distribution appointed in 2007.

[38] The Management Defendants are alleged to have recommended that the Board approve Re:Sound’s increased presence and involvement in the neighbouring rights economy competition against Member Collectives for new rightsholders. The plaintiff pleads that the Management Defendants, in breach of their duties to Re:Sound, caused Re:Sound to improperly and unfairly compete against ACTRA PRS (e.g., para. 11). It is alleged that the Management Defendants have pursued, and caused Re:Sound to pursue, an agenda to grow Re:Sound’s distribution business to the point where it can become the sole collective for neighbouring rights in Canada and render ACTRA PRS redundant (e.g., para. 85). It is alleged that this is not consistent with Re:Sound’s objectives and goals and is prejudicial to the interests and expectations of ACTRA PRS and other Member Collectives (e.g., para. 86).

[39] This culminated in the recommendation of the Management Defendants to the Board in October 2022 (when all named Management Defendants were involved) to eliminate ACTRA PRS and other Member Collectives from the neighbouring rights space (e.g., paras. 41 and 107). The plaintiff alleges that it serves the interests of the Management Defendants (financially and reputationally) to increase Re:Sound’s competitive advantage over the plaintiff in the distribution market. It creates a platform for the Management Defendants to grow a business and expand their own influence, power and reputations in the industry by causing Re:Sound to move into, and take over, the neighbouring rights space in Canada. This is also alleged to have resulted in other economic advantages to them through increased (and disproportionately large) salaries relative to industry standards (e.g., para. 11).

[40] It is alleged (e.g., paras. 95, 98 and 102-107) that, without first seeking and receiving Board approval, and in furtherance of their own agenda, the Management Defendants decided to adopt a new fee policy that removed fees payable by Direct Assignors and retroactively adjusted fees paid by Direct Assignors. Further, even though they did not have a vote, they controlled and directed the discussions about fee policies at the Board. This began many years ago when Re:Sound started accepting Direct Assignors; however, it allegedly came to a head in June 2022 when the Management Defendants (all of whom were involved at the time) recommended that the Board not adopt the recommendations and analysis that Re:Sound had commissioned from Ernst & Young Inc (“E&Y”). Instead, they recommended the Board adopt a new fee policy that charged less to Direct Assignors than E&Y had recommended, in furtherance of their agenda to expand Re:Sound’s core mandate.

[41] This pattern of oppressive conduct is further alleged to have been carried over into the exercise of the powers of the Management Directors in the manner of implementation of the new IT system. The new system focused on features that would assist Re:Sound in better serving Direct Assignors over features that would facilitate the plaintiff’s continuing role in the neighbouring rights space.

[42] The decision to fund an IT system that will perform better for Direct Assignors than for Member Collectives, such as the plaintiff (para. 100), despite the requests by the plaintiff for the inclusion of features that would improve overall performance for Member Collectives, is also alleged to have had the effect of unfairly prejudicing the interests and expectations of the plaintiff. This is alleged to be a continuing concern as the development of the new IT system is ongoing, and therefore implicates all current Management Defendants, irrespective of when they joined Re:Sound.

[43] The plaintiff alleges that one of the two primary reasons for Re:Sound’s very existence is to propose, prosecute, defend and enforce tariffs (para. 112). ACTRA PRS and the other Member Collectives are completely reliant on Re:Sound to perform this function. The plaintiff further contends that the attitude and approach of the Management Directors towards the enforcement of fee tariffs against streaming services is contrary to Re:Sound’s interests and its objectives. This works to the advantage of the Direct Labels and disadvantage of the Member Collectives. It is a further example of continuing oppressive conduct that is alleged against the Management Directors in the Statement of Claim.

[44] Lastly, it is alleged that the Management Defendants continue to improperly exert their control over Re:Sound to advance their own, rather than the company’s, interests by causing Re:Sound to retain the same law firm as they retained. This, it is alleged, will allow them to control the response to this action and ensure that Re:Sound’s litigation strategy is aligned with their strategy and interests (e.g., paras. 116-131 and 135(e)).

[45] Since the Management Defendants are alleged to have acted in a manner contrary to the interests and objectives and corporate mandate of Re:Sound, and in breach of their duties to Re:Sound, the plaintiff maintains that retaining and instructing the same law firm to defend this action perpetuates this. The plaintiff initially scheduled a motion to have the law firm disqualified but abandoned that motion. Instead, it amended the statement of claim to plead that their involvement in Re:Sound’s defence of this action is an extension and continuation of the alleged oppression.

The Pleaded Claims Against the Major Label Director Defendants

[46] The Major Label Director Defendants are senior employees and the nominees to the Board of the Major Labels:

a. Mr. Kurtz (Sony), appointed in November 2018;

b. Mr. Deluca (Warner), appointed in June 2020; and

c. Mr. Teixeira (Universal), appointed in June 2022.

[47] The essence of the claims against this group of individual defendants is that they have preferred the interests of their nominating organizations over the best interests of Re:Sound, in breach of their duties to Re:Sound.

[48] The Major Label Director Defendants are, however, also implicated in the Management Defendants’ oppressive conduct. The plaintiff pleads that the Director Defendants slow the Board’s processes down and conduct themselves in a manner that negates the Board’s ability to reign-in the Management Defendants. This, in turn, allows the Management Defendants to pursue their improper competition with the Member Collectives unfettered (e.g., paras. 14 and 89).

[49] In exchange, it is alleged the Management Defendants avoid pursuing policies or implementing decisions that would negatively impact the Major Labels, such as the pursuit of expanded or increased tariffs, and even the enforcement of the existing tariffs and related policies (e.g., paras. 12 and 86). The Major Label Director Defendants are alleged to have joined forces with the Management Defendants to ensure that essential aspects of Re:Sound’s mandate are not protected and pursued (e.g., paras 112-115). This is alleged to be economically advantageous to the Major Labels (and therefore their employees, the Major Label Director Defendants) as tariffs imposed by Re:Sound displace other sources of revenue to the Major Labels through streaming services (e.g., paras. 12 and 86).

[50] The Plaintiff specifically pleads that it reasonably expected the Director Defendants not to favour their own nominating organizations’ interests over those of Re:Sound and the pursuit of its core mandate and objectives (e.g., para. 136 (c)). The plaintiff claims this expectation was breached by the conduct described above.

The Two-Prong Test for the Oppression Remedy

The First Prong: Are the Individual Defendants Implicated in the Alleged Oppression?

Collective Claims

[51] The primary criticism of the pleaded claims against the individual defendants is that the claims are asserted against two groups of similarly situated defendants (the Management Defendants and the Major Label Director Defendants) and do not assert individually particularized misconduct.

[52] This is said to be further exacerbated by the fact that there is a wide divergence between the individual defendants regarding the length of their tenure with Re:Sound. Many joined long after the alleged misconduct is alleged to have started, which dates back to 2010 if not earlier. In the earlier part of the alleged period of misconduct, the Major Labels did not even have Board nominees.

[53] The broad contention of the individual defendants is that they cannot, as a matter of law, be held personally responsible for things that happened before they had any involvement with Re:Sound.

[54] In general terms, the statement of claim pleads (e.g., at para. 89) that all of the individuals involved attempted to implement this strategy of pursuing their own agendas at the expense of the Member Collectives without committing obvious breaches of their fiduciary duties to Re:Sound. It also pleads that “[t]he oppression in this case is insidious and manifests from a pattern of conduct over a long period of time. There are few obvious discreet acts of oppression.”

[55] The individual defendants contend that this is an admission on the face of the pleading for which there is no specific oppressive conduct that can be attributed to the individual defendants. They argue that it is fatal to the claims asserted against them, relying upon Budd.

[56] A pleading must adequately identify the roles allegedly played by the various defendants in relation to each cause of action. Further, it must state both how the individual defendants have harmed the plaintiff and the nature of the harm. See Kates v. Trapeze Asset Management Inc., 2019 ONSC 3483, at paras. 26-27, citing CIT Financial Ltd. v. Sharpless, [2006] O.J. No. 2170, at para. 7 (Ont. S.C.). The individual defendants maintain that it is improper to simply lump defendants together without specifying the exact allegations made against each individual defendant and without pleading the requisite material facts to support those allegations. See Martin v. Astrazeneca Pharmaceuticals PLC, 2012 ONSC 2744, at para. 109; Budd. See also Cottage Advisors of Canada Inc. v. Prince Edward Vacant Land Condominium Corp. No. 10, 2020 ONSC 6445, at paras. 34-35.

[57] The individual defendants contend that “[a] claim against a director (or officer) must attribute ‘specific, identified acts or omissions to the individual[s]’ and the facts giving rise to personal liability must have been specifically pleaded, in order to survive a rule 21 motion.” See Libfeld v. Patica Corporation, 2018 ONSC 3373, at para. 18, citing Aird v. Harmony House of Kirland Lake, [2001] O.T.C. 569 (Ont. Div. Ct.), at paras 11-13, 25.

[58] They argue that the alleged refusal to accommodate ACTRA PRS’s requests for certain features to be included in Re:Sound’s IT system and management’s non-binding proposal to the Board regarding a new fee policy (that are what ACTRA PRS says entitles it to be paid $43.1 million from the individual defendants, jointly and severally) is not at all particularized, and no specific individual is alleged to have engaged in any specific conduct at any specific time. The individual defendants maintain that this is not the type of deficiency that can be saved by a demand for particulars or particulars to be provided on discovery. These are essential particulars of the specific conduct that an individual is alleged to have engaged in that rise to the level of personal liability.

[59] In response to this, the plaintiff rests on its allegation that a course of insidious conduct persisted over a lengthy period while each of the individual defendants was in a management position or on the Board and that they facilitated this conduct or were willfully blind and did not stop it.

[60] In Budd, the court was concerned (at paras. 20 and 48) that the claim “utterly fail[ed] to deal with the ... management defendants on an individual basis.” Instead, they were “treated as a single entity, each indistinguishable from the other” and there was “no attempt to connect any individual ... officer to the alleged corporate oppression” or to allege that “any specific ... management defendant was a[n] ... officer when any of the relevant events occurred.” The plaintiff points out that the Court of Appeal in Budd stated explicitly (at para. 52) that its ruling did not turn on the plaintiff’s failure to distinguish between the defendants. Collective claims are not necessarily fatal.

[61] Like in Wilson, the plaintiff in this case has named only three out of thirteen Board members and the executive management team. The plaintiff has also alleged that these particular individuals participated in certain corporate action or inaction, and exercised or failed to exercise their powers so as to effect oppressive conduct, in furtherance of their own personal interests to the determinant of the plaintiff and other Member Collectives. The plaintiff argues that the oppressive conduct is on a continuum and has been perpetuated by the individual defendants during their tenure with Re:Sound, however long or short it may be.

[62] The plaintiff maintains that the pleading in this case meets the standard applied by the Supreme Court of Canada and the Quebec Court of Appeal in Wilson. The plaintiff relies upon the following passage in Ninth Square Capital v. Boyes et al, 2021 ONSC 3878:

[46] While I agree that the roles of the defendants are not distinguished from each other in the claim as precisely as they would be at trial, that is a reflection of the stage at which the action finds itself. It is the defendants who have knowledge of how their roles and knowledge might be distinct from one another.

[47] What matters for the defendants’ purposes is that they know the claim that is alleged against them. Put plainly, they knew of the iAnthus arrangement and despite that knowledge they entered into the Spartan agreement without disclosing that the plaintiff would not receive shares in a public company as the Spartan agreement promised.

[63] Other examples of cases in which the plaintiff maintains that allegations made collectively against groups of defendants have survived a motion to strike include: Alpha Tire Corp v. South China Industries (Canada) Inc., [2000], O.J. No. 212 (Ont. S.C.), at para. 26; Abboud et al v. Bouwer et al, 2021 ONSC 6188, at para. 30; Aird, at paras. 23 and 25. For each case, the individual defendants have a counter-argument for why the case should not be relied upon by the court in this case.

[64] This is not the time for the court to determine whether the claims against the individual defendants will succeed. The court need only be satisfied that the oppression claims against the individual defendants are not doomed to fail. A claim based on a course of conduct perpetuated over a period of time by different individuals along the way, who all are alleged to have had personal incentives for doing so, may have some hurdles to overcome but I am not convinced at this stage of the action that it is plain and obvious that it has no chance of success.

[65] The individual defendants may succeed in having the oppression claims against them personally dismissed. If there needs to be an apportionment of liability – to account for differing degrees of involvement or involvement in different conduct that might have resulted in different consequences and damages – that can be raised in their defences and addressed during the course of the adjudication of the claims; however, it is not a reason to dismiss the claims against them at this early stage.

[66] The allegations in the Statement of Claim are not just that the individual defendants caused Re:Sound’s oppressive conduct. They are alleged to have been motivated by external interests to move Re:Sound away from its core mandate. They are not just alleged to be cogs in a wheel, they are alleged to be turning the wheel or influencing the direction it takes for purposes that suit their objectives and that are oppressive, unfairly prejudicial or that unfairly disregard the reasonable expectations of ACTRA PRS. They are implicated in the oppressive conduct.

[67] The required elements of an oppression claim have been alleged, namely the Statement of Claim: (i) identifies the reasonably held expectations the plaintiff claims to have been violated by the conduct at issue; and (ii) asserts that these reasonable expectations were violated by conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director, officer or member of the corporation. See Wilson, at para. 24.

Individual Claims Distinct from Claims Against Re:Sound

[68] The individual defendants maintain that there is nothing about the Statement of Claim that is specific to them and distinct from the claims against Re:Sound.

[69] The individual defendants contend that the declaratory relief claimed as against them is patently unnecessary because it could equally be accomplished with the same declaration being made just against Re:Sound (which is pleaded). This is because they concede that those individual defendants who remain as officers and directors of that company would be bound to cause Re:Sound to take whatever corporate steps and actions as the court may order if the plaintiff is successful in its claims against Re:Sound. They further maintain that any order relating to Re:Sound’s corporate governance necessarily binds Re:Sound’s Board, including the Major Label Director Defendants.

[70] However, if the pleading asserts that the moving defendants are implicated in the oppressive conduct said to give rise to that relief and asserts a reasonable basis upon which a court could conclude that personal liability is fit in all of the circumstances, I was not directed to any authority that says that the claims should be struck against them simply because the declaratory relief sought could be achieved by an order against Re:Sound alone. But even if that was so, in this case the plaintiff also claims damages of $43.1 million against all of the defendants jointly and severally, the individual defendants included. The individual defendants appear to have initially misread the Statement of Claim to be only claiming damages against Re:Sound and not to be seeking any relief against them at all (aside from requiring them to cause Re:Sound to do certain things).

[71] The fact that the oppressive conduct of the individual defendants mirrors that of Re:Sound does not exonerate them. The law recognizes that a company or organization must act through individual representatives, in this case the Management Defendants and Major Label Director Defendants. To my understanding, that is precisely why there is a second prong to the oppression remedy test for individual officers and directors who are named.

The Second Prong: Do the Pleadings Disclose a Reasonable Basis to Conclude that the Imposition of Personal Liability is Fit in the Circumstances?

[72] There must be a reasonable basis in the pleadings on which a court could conclude that the imposition of personal liability (e.g. an order against the director or officer personally) is fit in all of the circumstances such that the oppression remedy is a fair way of dealing with the situation. In this case, personal benefits or advantages are alleged in respect of both categories of defendants:

a. With respect to the Management Defendants, the statement of claim alleges they are pursuing their own personal agendas and reputations for enhanced remuneration and recognition in the industry;

b. With respect to the Major Label Director Defendants, the statement of claim alleges that they are pursuing the interests of their nominating organizations – their employers – and it stands to reason that this will benefit them in their employment.

[73] The Management Defendants contend that the allegation that they have done this for personal gain (salary or reputation) is wholly speculative, unparticularized and entirely out of their control. They contend that this is not a “fact” that the court should accept as proven on a pleadings motion. Nor is it possible for them to:

a. Increase their own compensation; or

b. Cause a deadlock at the Board.

[74] The by-laws of Re:Sound do not give them control over either of these matters. They are Board level matters and the Management Defendants do not sit on the Board and have no voting rights at the Board.

[75] The Major Label Director Defendants contend that the speculative allegations that they have benefited financially or otherwise from their Major Label employers as a result of their conduct at the Board is spurious. Further, they contend that the deadlocks at the Board are a function of the Board nomination and voting process and not caused by them. The Major Label Board nominees joined the Board late and the voting structure was already in place.

[76] While the allegations of personal gain are general and imprecise to some extent, these are matters that the plaintiff would not necessarily be able to substantiate or particularize at this early stage of the proceeding. They are not entirely illogical. I am not convinced that the allegations of personal benefits are so speculative as to render them irrelevant to the analysis. But even if they were, some of the other factors from the non-exhaustive list that the court is directed to consider under the second prong of the test (see Wilson, at paras. 32, 47-48, and 50) that are also pleaded include:

a. The enhanced de facto power and control and influence that they have achieved over fee policies, tariff enforcement and the overall direction of Re:Sound, even though not through the normal channels (of increased shareholdings, for example).

b. The alleged abuse of power and position by the Management Defendants in exercising their de facto control over these matters, and failure of the Major Label Director Defendants to exercise their powers to stop it, which are alleged to be breaches of their fiduciary and other duties owed to Re:Sound.

c. This is alleged to be a classic case in which it would prejudice the plaintiff and other rights holders if a monetary remedy was levied against Re:Sound.

[77] The individual defendants argue that personal liability must be fit to remedy alleged oppressive conduct that they undertook for personal gain or in bad faith, and that it is not fit if it is to serve a purely tactical purpose. See Wilson, at para. 54. They caution that the court should be cautious to avoid imposing personal liability as “a surrogate” for other forms of relief in the corporate context. See Wilson, at para. 55. This argument is predicated on the assertion of the individual defendants that the reason they were named was to conflict them out of participating in Re:Sound’s defence of this action, which they say is apparent from the amendments to the Statement of Claim.

[78] This is a pleadings motion. Having gone through the two-prong analysis from Wilson, and having examined the Statement of Claim in that process, it is not plain and obvious that the desire to conflict out the law firm was the ulterior or strategic reason for naming the individual defendants, even if that could be the effect.

[79] I find that the oppression remedy claims have been sufficiently pleaded as against the individual defendants to withstand their Rule 21 motions.

Rule 25.11 – Abuse of Process

[80] The defendants argue, based on the same alleged ulterior motives as have already been considered above, that the claims against them personally should be struck under Rule 25.11 as an abuse of process.

[81] In Budd, the Court of Appeal left open the prospect that impleading individual defendants for tactical reasons could be characterized as an abuse of process. The court was concerned that individual defendants “should not be forced to endure the expense and inconvenience of litigation when the allegations do no more than identify them as having held a certain position at some unspecified point in time.” See Budd, at paras. 50 and 51. However, that case was not decided based on any finding of abuse of process.

[82] The individual defendants maintain that claims being “made for an extraneous or collateral purpose” and a claim asserting “untenable pleas” have been held by this court to be independent bases for triggering Rule 25.11. See i.e., Stedfasts Inc. v. Dynacare Laboratories, 2019 ONSC 6626, at para. 34; George v. Harris, [2000] O.J. No. 1762 (Ont. S.C.), at para. 22; Lorion v. 1163957799 Quebec Inc., 2015 ONSC 2417, at para. 18; Del Giudice v. Thompson, 2021 ONSC 5379, at para. 57.

[83] However, I do not agree with the contention by the individual defendants that just because the plaintiff openly acknowledges that it does not want the individual defendants involved in Re:Sound’s defence of this action, that it necessarily follows that they were named as defendants to prevent them from being able to do so.

[84] The inference of an ulterior motive would require the court to come to a different assessment of the truth of the asserted facts. Having found that the pleaded facts, assumed to have been proven for purposes of this motion, establish a cause of action that is not doomed to fail. I do not consider that there is any room at this point in a pleadings motion to infer an ulterior motive on the part of the plaintiff that would negate the otherwise viable cause of action in oppression that I have found to have been sufficiently pleaded to survive the Rule 21 motions.

[85] While it may not always be the case that a motion order under Rule 25.11 cannot succeed where motion to strike under r. 21.01(1)(b) would fail, there are some circumstances where that would be true: “if the Statement of Claim discloses a reasonable cause of action, it cannot be said to be ‘scandalous, frivolous, vexatious or an abuse of process’.” See 1239745 Ontario Ltd v. Bank of America Canada, 1999 CarswellOnt 2665 (Ont. S.C.), at para 42.

[86] I have found that the Statement of Claim discloses a reasonable cause of action in oppression against the individual defendants. I do not find the statement of claim to be an abuse of process in this case and I am not prepared to strike the oppression claims, or the added pleas about the role of the individual defendants in Re:Sound’s defence of this action, at this early pleadings stage.

Leave to Amend the Statement of Claim

[87] Since I have not been persuaded to strike out or dismiss the claims against the individual defendants at this stage, I do not need to decide the question of whether the plaintiff should be given the chance to amend its statement of claim. I will make a few observations that would have been relevant if I had been required to decide this point.

[88] Leave to amend should be refused only where there is no reason to believe that the party’s case could be improved by an amendment. In other words, “if it is clear that the plaintiff cannot allege further facts that they know to be true to support the allegations in the pleading, leave to amend will not be granted”. See TSCC Corporation No. 2123 v. Times Group Principals, 2018 ONSC 4799, 93 C.L.R. (4th) 24, at para. 88, citing Miguna v. Ontario (Attorney General), (2005), 262 D.L.R. (4th) 222, at para. 22.

[89] The fact that there has already been one pleading amendment (which was made to address events arising after the fact, and which was not an attempt to fix the alleged deficiencies in the core oppression claims) is not a reason to deny an amendment. The general approach to these motions is that “any lack of particularity should also be addressed by amendment” and a plaintiff should be permitted to amend its statement of claim “to assert their claim for a personal remedy against [the director/officer defendant] under the oppression remedy.” See FNF Enterprises, at paras. 42, 44.

[90] Where the plaintiff has had ample time to improve its pleading after the defendants’ motion materials for the motion to strike were delivered and has not done so, the court may infer that there are no further facts that could be pleaded that would cure the present deficiencies. See Budd, at para. 49; Sheridan v. Ontario, 2015 ONCA 303, at paras. 29-30; see also JB&M Walker Ltd v. TDL Group, 2018 ONSC 5886, at paras 75-81. That cannot be said in this case. It has not been that long.

[91] The real crux of the argument put forward by the individual defendants in this case for not granting leave to amend was that ACTRA PRS should not be given a further opportunity to cooper up a purely tactical claim against the Management Defendants in an attempt to gain leverage and impede Re:Sound’s ability to defend this action. I have not been persuaded, for the purposes of this early stage pleadings motion, that it is plain and obvious that this is a purely tactical claim to gain leverage. Thus, that would not have been a reason in this case to deny leave to amend if the statement of claim had been found to be insufficiently particularized to withstand the motions to strike.

General Concerns Regarding Oppression Claims Against Officers and Directors

[92] The court recognizes that individual defendants can be put to considerable cost and inconvenience in connection with a claim against them personally, in addition to facing the stress associated with having to defend a legal proceeding. They should not be forced to endure this if the claim against them is demonstrated to be doomed to fail and the remedies can be sought against Re:Sound alone with them being required to cause it to comply.

[93] That is why I have gone to the trouble to carefully scrutinize the claims against them. In this case, I am not persuaded that the claims against them are doomed to fail, even if they may be somewhat novel or unusual because of the historic and ongoing nature of the oppressive conduct that they are each alleged to have participated in for different periods of time and to different extents, based upon their tenure with Re:Sound. I have concluded that they do not need to have initiated or to have been the masterminds behind the alleged oppressive conduct to be implicated in it.

Final Disposition and Costs

[94] For the foregoing reasons, the motions to dismiss this action as against the individual defendants are dismissed.

[95] The parties have agreed on the quantum of costs to be awarded to the successful party on each of the two motions to strike. The successful party on each motion will receive $25,000 from the unsuccessful party. The parties asked that the court identify explicitly in these reasons who the successful parties are on each motion.

[96] The plaintiff was the successful party on each motion, having succeeded in its opposition to these motions. Accordingly, each of the Management Defendants and the Major Label Director Defendants shall forthwith pay all-inclusive partial indemnity costs of $25,000 to the plaintiff.

Kimmel J. Date: June 14, 2023