Harris v. Leikin Group Inc., 2011 ONCA 790

CITATION: Harris v. Leikin Group Inc., 2011 ONCA 790

DATE: 2011-12-15

DOCKET: C54033

COURT OF APPEAL FOR ONTARIO

Rosenberg, Cronk and Watt JJ.A.

BETWEEN

Adam Leikin Harris, Naomi Sara (Harris) Stanton, Sheira Rachel Harris, Zena Leah Harris, Hilliard Brian (Rick) Kesler, and David Joseph Spieler

Plaintiffs/Appellants

and

Leikin Group Inc., Barbara Linda Farber, David Lawrence Katz, Andrew Mark Katz, Grant Jameson, Geoffrey Gilbert, Ogilvy Renault LLP, Gerald Levitz, Patricia Day, Ginsburg Gluzman Fage & Levitz LLP and First Capital Realty Inc.

Defendants/Respondents

Counsel:

Randy Bennett and Sara J. Erskine, for the appellants

Crawford Smith and Molly M. Reynolds, for the respondent First Capital Realty Inc.

Heard: December 5, 2011

On appeal from the Order of Justice David M. Brown of the Superior Court of Justice, dated August 10, 2011, reasons reported at 2011 ONSC 3556.

BY THE COURT:

I. Background

[1] The dispute in this case arose from transactions involving changes in the ownership of a retail shopping mall in Ottawa known as “College Square”.

[2] Prior to the events at issue, College Square was owned by a group of cousins through shareholdings in various family-owned companies. When some of the cousins (the appellants) sought to liquidate their interests in the property, negotiations commenced with the remaining cousins (the “Katz Group”) about a possible share redemption transaction with the family companies that would permit the Katz Group to acquire the appellants’ interests in College Square.

[3] The Katz Group required financing to fund the share redemption transaction. Ultimately, they obtained the necessary funds by selling a 50% interest in College Square to the respondent, First Capital Realty Inc. (“FCR”).

[4] The purchase price paid for the appellants’ shares (based on a total value of $60 million for College Square) was considerably less than the purchase price paid to the Katz Group by FCR (based on a total value of $78.8 million for College Square). When the appellants subsequently learned of the differential between the values assigned to College Square for the share redemption transaction, on the one hand, and for the FCR acquisition, on the other hand, they sued the Katz Group and others for damages based on various torts, including breach of fiduciary duties, among other matters. The appellants also sued FCR for damages based on the tort of knowing assistance in breach of fiduciary duties.

[5] On motion brought by FCR, Brown J. of the Superior Court of Justice granted summary judgment in favour of FCR on the ground that the appellants had no legal or evidentiary basis on which to complain against FCR and, thus, no genuine issue for trial arose concerning FCR. Concurrently, the motion judge denied summary judgment motions brought by the remaining defendants, including the Katz Group, concluding that the appellants’ claims against those parties required a trial. This appeal concerns only the motion judge’s summary judgment ruling regarding FCR.

II. Issues and Discussion

[6] The appellants attack the motion judge’s decision regarding FCR on two main grounds. They submit that the motion judge: (1) misapplied the test for knowing assistance in breach of fiduciary duty; and (2) failed to consider relevant evidence that allegedly supported their claim against FCR, including circumstantial evidence that the appellants say supported the inferences that FCR had the requisite knowledge to meet the test for the tort asserted and, armed with that knowledge, that it participated or assisted in the breach or breaches of fiduciary duty said to have been committed by the Katz Group.

[7] We reject these arguments. For the following reasons, we conclude that there is no basis for appellate intervention with the motion judge’s ruling concerning FCR.

[8] There is no dispute concerning the constituent elements of the tort of knowing assistance in breach of fiduciary duty: (1) there must be a fiduciary duty; (2) the fiduciary must have breached that duty fraudulently and dishonestly; (3) the stranger to the fiduciary relationship must have had actual knowledge of both the fiduciary relationship and the fiduciary’s fraudulent and dishonest conduct; and (4) the stranger must have participated in or assisted the fiduciary’s fraudulent and dishonest conduct: Air Canada v. M & L Travel Ltd., 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787; Gold v. Rosenberg, 1997 CanLII 333 (SCC), [1997] 3 S.C.R. 767. The knowledge requirement for liability based on this tort is actual knowledge, which, as the Supreme Court confirmed in Air Canada, at para. 38, includes recklessness and wilful blindness. As this court observed in Keeton v. The Bank of Nova Scotia, 2009 ONCA 662, 254 O.A.C. 251, at para. 82, “to found liability [on knowing assistance in a breach of fiduciary duty], the stranger to the trust must have actual (as opposed to constructive) knowledge of the misconduct, or be wilfully blind to the breach or reckless in his failure to realize that there was a breach”.

[9] In order to successfully resist FCR’s summary judgment motion in the circumstances of this case, the appellants were required to demonstrate a genuine issue for trial concerning: (1) FCR’s actual knowledge of the existence of fiduciary duties owed to the appellants by the Katz Group and of the fraudulent and dishonest breach of those duties by one or more members of the Katz Group; and (2) FCR’s participation or assistance in those breach of duties.

[10] The motion judge reviewed the evidence at great length in his reasons, including that relied on by the appellants as the basis for their claim against FCR. Based on his detailed review of the evidence, the motion judge held that the appellants had failed to establish a genuine issue for trial regarding the requisite knowledge by FCR.

[11] In our view, this finding is firmly anchored in the evidentiary record. We note, in particular, the following.

[12] The appellants maintain that members of the Katz Group breached their fiduciary duties to the appellants by failing to disclose – at a time when the parties were engaged in discussions about the sale of the appellants’ shares to the Katz Group – FCR’s interest in College Square and its apparent willingness to pay a purchase price for a partial equity position in College Square based on a value that significantly exceeded the appraised value of the property as at August 2004 and the value(s) for College Square discussed between the appellants and the Katz Group. The appellants maintain that this information was relevant and material to their decision to sell their shares at the price eventually agreed on and, if known to them at the time, could well have influenced their decision to sell their shares.

[13] However, it was FCR’s evidence on the summary judgment motion that neither the involved FCR business executive nor FCR’s transaction counsel knew the details of the proposed share redemption arrangement between the appellants and the Katz Group, including the various proposed or agreed share redemption prices.

[14] As the motion judge pointed out, the appellants failed to adduce any evidence to counter FCR’s evidence on this critical point. Simply put, on the record before the motion judge, there was no evidence that FCR had the requisite knowledge that the Katz Group was withholding information, let alone information potentially material to the appellants’ decision to sell their shares, from the appellants at the relevant times.

[15] The appellants argue that there was evidence that FCR knew that the acquisition of the appellants’ interests in College Square by the Katz Group was a necessary precondition to the acquisition by FCR of an interest in the property. They also contend that the Katz Group’s discussions with FCR were conducted in “secret” and that FCR was requested to keep these discussions “secret” when they were told to refrain from contacting any of the appellants concerning College Square. The appellants submit that this was circumstantial evidence that FCR had sufficient information of the share redemption transaction to put it on inquiry as to the authority of David Katz to speak for the owners of College Square and as to the propriety of the Katz Group’s dealings with the appellants. In these circumstances, the appellants maintain, FCR’s failure to inquire further constituted recklessness or wilful blindness in respect of the Katz Group’s alleged breach of fiduciary duties.

[16] We disagree. As we have said, there was no evidence before the motion judge that FCR had the requisite knowledge that the purchase of the appellants’ shares was to be effected at a materially lower price than that which corresponded to the value placed by FCR on College Square.

[17] Further, the appellants entered into a binding letter of intent regarding the sale of their shares in April 2005. The record contains no indication that FCR knew any details of the discussions between the appellants and the Katz Group in the fall of 2004 and the spring of 2005 concerning the value of College Square, the price for the appellants’ shares or the other arrangements which led to the signing of the letter of intent by the appellants. Indeed, FCR had no significant contact with the Katz Group throughout the entire period of October 2004 to May 2005.

[18] Moreover, after the appellants entered into their letter of intent, the proposed sale of part of College Square to an institutional or other investor was the subject of an independent and public auction process conducted by a sophisticated and experienced external investment firm. FCR submitted its first and only offer to acquire an interest in College Square in July 2005, as part of that external bid process. Its offer was recommended to the Katz Group for acceptance by the independent overseer of the public bid process.

[19] Finally, while it is true that FCR was asked not to contact the appellants directly, this request did not render FCR’s discussions with the Katz Group clandestine or surreptitious. This was a family share buy-out situation. FCR’s discussions were held with a senior executive of the corporate group that controlled College Square. There is no evidence that FCR had any reason to believe that the fact and content of those discussions were being hidden from some involved family members but not others. Viewed in this context, there is nothing untoward in the request that FCR not negotiate or undertake discussions with other family members.

[20] We therefore agree with the motion judge that no genuine issue for trial exists regarding the appellants’ claim against FCR. As framed by the appellants, that claim rests solely on the tort of knowing assistance in breach of fiduciary duty. Whatever view is taken of the “knowledge” required to make out this tort, the evidence before the motion judge, taken at its highest, failed to establish the requisite knowledge by FCR of any fraudulent and dishonest conduct by the Katz Group in its dealings with the appellants. On this basis alone, the appellants’ claim against FCR was doomed to fail.

III. Disposition

[21] Accordingly, the appeal is dismissed. FCR is entitled to its costs of the appeal, fixed in the amount of $14,000, inclusive of disbursements and all applicable taxes.

RELEASED:

“MR” “M. Rosenberg J.A.”

“DEC 15 2011” “E.A. Cronk J.A.”

“David Watt J.A.”