Court File and Parties

Court: COURT OF APPEAL FOR ONTARIO Date: 2023-06-06 Docket: C70874 & COA-22-CV-0392

Judges: van Rensburg, Paciocco and Thorburn JJ.A.

Between: Physicians’ Dialysis Center Inc., Plaintiff (Appellant) And: The Credit Valley Hospital and Trillium Health Center and David Perkins, Defendants (Respondent)

And Between: David Perkins, Plaintiff by Counterclaim (Respondent) And: Physicians’ Dialysis Center Inc., George Wu, Arturo Wadgymar, Gordon K.T. Wong and Donald Kim, Defendants by Counterclaim (Appellants)

And Between: Philip Boll, Plaintiff (Respondent) And: Physicians’ Dialysis Center Inc., Trillium Health Partners, George Wu, Arturo Wadgymar, Gordon K.T. Wong and Donald Kim, Defendants (Appellants)

Docket: COA-22-CV-0392

And Between: Physicians’ Dialysis Center Inc., Plaintiff And: The Credit Valley Hospital and Trillium Health Center and David Perkins, Defendants (Respondent)

And Between: David Perkins, Plaintiff by Counterclaim (Respondent) And: Physicians’ Dialysis Center Inc., George Wu, Arturo Wadgymar, Gordon K.T. Wong and Donald Kim, Defendants by Counterclaim (Appellant)

And Between: Philip Boll, Plaintiff (Respondent) And: Physicians’ Dialysis Center Inc., Trillium Health Partners, George Wu, Arturo Wadgymar, Gordon K.T. Wong and Donald Kim, Defendants (Appellant)

Counsel: Douglas Christie for the appellants (C70874), Physicians’ Dialysis Center Inc., George Wu and Gordon K.T. Wong Mark Ross and Daniel Milton for the appellant (COA-22-CV-0392), Donald Kim Michael McWilliams and Tamara Watson for the respondents, David Perkins and Philip Boll

Heard: April 26, 2023

On appeal from the judgment of Justice Renu J. Mandhane of the Superior Court of Justice, dated June 21, 2022, with reasons reported at 2022 ONSC 3640, and reasons on costs reported at 2022 ONSC 3818.

Thorburn J.A.:

A. Overview

[1] These are two related appeals of a judgment in which Physicians’ Dialysis Center Inc. (“PDC”), and Drs. George Wu and Gordon Wong, were found to have been unjustly enriched at the expense of Drs. Perkins and Boll (together “the respondents”). They were held jointly and severally liable to pay general damages for funds owing to the respondents as partners of Credit Valley Nephrology Associates (“CVNA”), and to pay punitive damages for abuse of trust and breach of fiduciary duty.

[2] As noted by the trial judge, the test for unjust enrichment is whether: (i) the defendants were enriched; (ii) the plaintiffs were correspondingly deprived; and (iii) there was no juristic reason for the benefit and corresponding detriment: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at paras. 35 to 59, 63, and 83. The question is whether the defendant unjustly became richer in circumstances where the plaintiff became poorer. The concept of “loss” captures a benefit that was never in the plaintiff’s possession but that the court finds would have accrued for their benefit had it not been received by the defendant: Moore, at para. 44, citing Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805, at para. 30.

[3] In the first appeal (C70874) (referred to as the “main appeal”), the appellants, PDC, Wu and Wong (referred to collectively as “the appellants”) claim that the trial judge erred in her interpretation of the 2005 Memorandum of Understanding (“MOU”) (as described below) by (i) failing to consider an earlier funding formula laid out in the May 1, 2000 Hospital Inter Office Memo, (the “Memo”) which provided compensation for use of the space but not other overhead costs or services, and (ii) interpreting the agreement to include both a fee for space and services would render the MOU illegal as physicians are not allowed to extra bill for their services. Moreover and in any event, the appellants claim the trial judge erred in holding that the claims were not statute-barred.

[4] After hearing the appellants’ oral submissions in the main appeal, we dismissed the appeal with reasons to follow. For these reasons, I see no error in the trial judge’s conclusions that the appellants were unjustly enriched, and that the respondents’ claims were not statute-barred.

[5] A second appeal (COA-22-CV-0392) was brought by Dr. Kim against the respondents Perkins and Boll only (the “Kim Appeal”). Kim claims the trial judge erred by denying him his 15.27% share in interpleaded funds. His request to change the order below to reflect this, was unopposed and I would grant the order requested.

B. Background Facts

[6] Many of the facts were set out in an Agreed Statement of Facts.

[7] Drs. Perkins, Boll, Wu, Wong, Wadgymar and Kim (collectively, the “Partners” in CVNA) are nephrologists.

[8] In 1997, Wu, Wong and Wadgymar founded a partnership nephrology practice called Credit Valley Nephrology Associates or CVNA, to provide nephrology services for their patients. The Partners also treated patients at Trillium Health Partners and its satellite community clinics (the “Hospital”). Kim became a partner of CVNA in 2004, Perkins in July 2006, and Boll in July 2010. Each partner contributed to CVNA’s overhead expenses including rent for the premises, proportionate to their interest in the partnership and each received Ontario Health Insurance Plan (“OHIP”) billings and profits from CVNA.

[9] CVNA’s rental premises (the “Premises”) were across from the Hospital. The Premises were owned by Credit Valley Professional Building Inc. 642115 Ontario Limited (“642”) owned shares in Credit Valley Professional Building Inc., and Wu and Kim owned shares in 642.

[10] The Premises were occupied by CVNA and all rental payments were paid by the CVNA partnership.

[11] In 1999, Wu, Wong and Wadgymar incorporated Physicians’ Dialysis Centre Inc. (“PDC”) to receive tax benefits from revenue earned from dialysis treatments and research projects.

[12] PDC did not have a proprietary interest in the Premises or the Clinic and was not a beneficial owner. PDC was not a party to any lease or agreement with 642 or Credit Valley Professional Building Inc. PDC did not own any shares in these corporations. Dr. Wu, Dr. Wong, Dr. Wadgymar and Dr. Kim did not sublet the Clinic to PDC. PDC did not pay rent for the Clinic. PDC did not receive any of the amounts paid as dividends from 642. PDC did not list the Premises on its financial statements.

[13] In or around 1999, the Ministry of Health and Long-Term Care (the “Ministry”) announced that it wished to fund a nephropathy clinic at the Hospital. The Hospital did not have space in its facility so the Hospital sought additional premises for the operation of its nephropathy clinic (the “Clinic”).

[14] Helen Anderson, the administrative director of the medicine and renal programs of the Hospital, and Dr. Wu, who at the time was the head of the Hospital’s Nephrology Division, negotiated an arrangement under which the Clinic would operate within the Premises rented by the CVNA (the “Understanding”). As part of this Understanding, a funding formula was laid out in the May 1, 2000 Memo. The Memo was addressed to David Rowe, the Senior Vice President of the Hospital who approved the arrangement.

[15] The Memo provides that the Hospital would pay a percentage of the amounts the Hospital received from the Ministry based on the number of patients served at the Clinic, which would be multiplied by, among others, a facility charge that was to cover the cost of “upkeep, cleaning and maintenance, clerk typist enhancement and additional supplies”. The Memo itself does not say to whom the payments would be made. The Memo was included in an email internal to the Hospital, dated May 12, 2000, in which Anderson notes that cheques for payment “should be made out to ‘Physicians’ Dialysis Centre’” (the “May 2000 Email”).

[16] In 2005, a Memorandum of Understanding (“MOU”) was signed between the Hospital, as represented by Rowe, and Wu, in his capacity as Medical Director of the Hospital’s Renal Program, on behalf of “the Nephrologists”.

[17] Rowe testified that the MOU was a continuation of the earlier Understanding, although the arrangement under the MOU provided for a larger percentage of reimbursement for the nephrologists. The MOU provides that the Hospital would compensate the “Nephrologists” a percentage of the “nephropathy clinic workload reimbursement”, which refers to payments that the Ministry would make to the Hospital based on the number of pre-dialysis consults, pre-dialysis follow-ups and nephropathy visits provided at the Clinic. The “Nephrologists” and the Hospital were the only parties to the MOU. There was no mention of PDC. The relevant provisions read as follows:

Nephrologists:

• The Nephrologists will provide office space for the Nephropathy Clinic.
• The Nephrologists will provide space for the Registered Nurses providing Nephropathy Clinic support.
• The Nephrologists will be responsible for clerical support, office supplies and computer/telephone equipment.
• The Nephrologists will provide monthly statistics of Nephropathy Clinic workload to Finance and the Administrative Director - Renal Programme.

The Credit Valley Hospital:

• The Credit Valley Hospital will compensate the Nephrologist group 30% of generated Nephropathy Clinic workload reimbursement.
• The Credit Valley Hospital will ensure all Nephropathy Clinic statistics are submitted to the Ministry of Health/ Long Term Care. [Emphasis added.]

[18] All CVNA partners including Perkins and Boll saw patients and contributed to the workload of the CVNA clinic. Between 2006 and 2013, $1,616,404 was paid by the Hospital to PDC, in accordance with the MOU formula.

[19] Kim testified that sometime in 2012, he had a conversation with the respondents and advised them that Wu was paying him monies he believed were being paid by the Hospital for use of the Premises. However, Kim admitted under cross-examination that, at the time of this conversation, he did not know about the existence of the MOU or PDC. He said he was “totally in the dark” about the nature and flow of funds between the Hospital and PDC. The respondents also remembered this conversation, but said they thought little of it as Kim did not seem to understand why he was receiving money; they speculated it was related to his ongoing dispute with Wadgymar.

[20] In a meeting with Hospital management on April 25, 2013, Perkins and Boll learned that the Hospital had been flowing funds to a corporation called PDC. On hearing this, they were surprised and asked the Hospital to provide a copy of the MOU. On April 27, 2013, Perkins first received a copy of the MOU by email. Between April 29 and May 3, 2013, he exchanged emails with Hospital staff to ascertain further details regarding the flow of funds from the Hospital to PDC. In May 2013, he forwarded the MOU and related information to Boll.

[21] On or around May 27, 2013, Perkins replaced Wu as the head of the Renal Program at the Hospital, following a competitive hiring process.

[22] At a subsequent CVNA partnership meeting in June 2013, Perkins and Boll brought up the issue of the MOU and demanded a share of the funds paid under its auspices. They were advised by Wu that they were not entitled to any share of the monies because the Hospital had paid the funds to PDC solely to cover the costs, risks, and liabilities associated with the lease of the Premises.

[23] The CVNA partnership was dissolved on August 15, 2013, at which time the partnership interests were as follows: Wu, 24.4%; Wong, 23.5%; Wadgymar, 19.8%; Kim, 16.9%; and Perkins, 15.4% (Boll was a “junior partner” and not yet entitled to share in profits, though he contributed to overhead expenses). Wu, Wong and Wadgymar terminated the MOU with the Hospital effective December 31, 2013.

[24] The Hospital refused to pay PDC the amounts owed under the MOU for part of 2012 and 2013 ($346,291) until the Partners resolved their dispute (the “MOU Funds”).

C. The Actions on the Main Appeal

[25] On February 10, 2015, PDC commenced an action against the Hospital and Perkins, claiming that the Hospital breached its contractual obligations under the MOU, and that Perkins abused his position to induce the Hospital to do so. The Hospital’s liability was extinguished after it paid the MOU Funds into court.

[26] On March 17, 2015, Perkins filed a Statement of Defence and Counterclaim against PDC, Wu, Wong, Wadgymar and Kim for damages for unjust enrichment, breach of fiduciary duty, breach of contract and conversion for a proportionate amount of the MOU Funds. Boll filed a separate claim for substantially the same relief. Their claims against Wadgymar and Kim were settled, though they maintained their entitlement to the MOU Funds.

[27] At trial, PDC claimed it was entitled to the funds paid pursuant to the MOU.

D. The Trial Judge’s Reasons

[28] The trial judge held that the monies should have been paid to CVNA for the following reasons:

[29] First, it was agreed that PDC is not a party to the MOU nor is it referred to in the MOU.

[30] Second, the arrangement was that the Hospital was to pay “the Nephrologists”. Members of Hospital management, namely Anderson and Rowe, testified that they understood the term “Nephrologists” to mean the nephrologist partners of CVNA (that is: Wu, Wong, Wadgymar, Kim, Perkins and Boll). Wu’s interpretation that “Nephrologists” was limited to lessees of the Premises was rejected.

[31] Third, the trial judge held that “Anderson gave clear and persuasive evidence about the essential quid pro quo that lay at the heart of the MOU. She said that the Hospital decided to flow the Funds to the nephrologists because they were providing nephropathy services and paying Overhead at [the Premises]”. Rowe also testified that he understood that the Nephrologists would be reimbursed for their nephrology work on the basis of the number of referred patients and their attendant overhead expenses.

[32] Moreover, the trial judge held that the CVNA partners paid all of the overhead expenses as (i) 642 was the lessor but the partners of CVNA occupied the Premises and paid all of the rent, (ii) Wu, Wong, Wadgymar and others were shareholders of 642 but Kim was not, yet he received funds while other shareholders of 642 did “not receive a cent”, and (iii) there was no “sub-lease” between PDC and 642.

[33] The trial judge therefore concluded at paras. 54 and 55 of her reasons that:

The inescapable conclusion is that Wu received the Funds from the Hospital on behalf of the Partners in CVNA. The partnership agreement itself clearly states the Partners’ intention to share their pooled assets (including leases and shares), and to share in the profits flowing into CVNA, including monies from hospitals: see Sections 2.8 and 4.2(b). While not all the Doctors were required to formally sign the partnership agreement, they all agreed that they acted consistently with the agreement and believed themselves to be bound by it. Kim testified that he told Wu that the Funds should be shared with the other Partners pursuant to the partnership agreement, but that Wu told him that he and the other partners (i.e., Wong and Wadgymar) did not agree.

Finally, there are no other factors that favour allowing the Defendants to retain a greater portion of the Funds compared to the other Partners. For example, the renovations to [the Premises], completed in 2003, are hardly relevant to the flow of Funds from 2006 and 2013. Moreover, given overall findings, I refuse to give any financial credit to Wong for “managing” the partnership or to Wu for developing a practice-management software. Both of these contributions were too remote when considered against the essential requirements for “nephrologists” under the terms of the MOU. [Emphasis in original.]

[34] The trial judge held that the only reason monies flowed to PDC under the MOU was because Wu asked the Hospital to make its cheques payable to PDC.

[35] She therefore concluded that PDC had no legal entitlement to the MOU Funds, the appellants were enriched and the respondents correspondingly deprived, and that, “but for the [respondents’] contributions, the [appellants] would have received less money from the Hospital and retained less of the Funds for themselves”: at para. 42.

[36] Compensatory damages were calculated based on the respondents’ unchallenged expert report which examined the “total amounts allocable to each party based on reimbursement to Nephrology Clinic costs” from 2006 to 2013. Punitive damages were also awarded, as Wu and Wong’s conduct was a marked departure from ordinary standards of behaviour of a person in a position of trust and punitive damages were required to punish them and discourage similar conduct, especially amongst self-regulated professionals entrusted with public funds.

[37] The trial judge held that the appellants were jointly and severally liable to pay Perkins $197,500 and Boll $110,577 (which included $50,000 each for punitive damages) plus applicable pre-and post-judgment interest. The amounts paid into court by the Hospital were to be used to satisfy the amounts owed and any remaining funds would remain with the court pending the appellants’ payment of costs. [1]

[38] The trial judge refused to grant Wu and Wong any portion of the interpleaded MOU Funds. She relied on the Agreed Statement of Facts which showed that Kim had already been paid $144,181.33 between 2006-2013 from funds paid out under the MOU. As such, she was satisfied that he had received his “fair share” of the funds and refused to grant him any portion of the interpleaded MOU Funds.

E. The Main Appeal (C70874)

The Trial Judge’s Reasons Regarding the Parties to the MOU and the Basis for Compensation

[39] The appellants claim the trial judge erred in her interpretation of the MOU as the MOU provided for the distribution of funds solely for the use of the Premises for the Clinic. They claim that, as neither Perkins nor Boll owned a part of the Premises, the trial judge erred in ordering that they were entitled to compensation. The appellants also claim the trial judge disregarded the terms of the original Understanding and Wu and Wong’s submission that they were approached by the Hospital because the Hospital “needed our space”.

[40] I see no error in the trial judge’s analysis or her conclusion which would justify appellate intervention: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-54; Housen v. Nikolaisen, 2002 SCC 3, [2002] 2 S.C.R. 235. The trial judge made findings of fact as to who the payees were and what the formula for payment was. Her findings were supported by the testimony of the hospital witnesses Anderson and Rowe, and deference is owed to her findings of fact. Nor did she make any errors of principle.

[41] While the trial judge did not expressly refer to the Memo written in 2000 or the May 2000 Email in which it was referenced, the appellants have failed to demonstrate why it was necessary to do so.

[42] The Memo is implicitly referenced at para. 25 of the Agreed Statement of Facts, in discussing the Understanding prior to the crystallization of the MOU. The MOU was simply a continuation of the Understanding, as described by the Hospital’s signatory to the MOU, albeit with an increase in the percentage of funds payable from the Hospital. As such, the Memo alone does not shed any new light on the agreement between the Hospital and the nephrologists. Likewise, the encompassing May 2000 Email from Anderson providing instruction for payment to PDC is consistent with her testimony that Wu, in his capacity as Medical Director of the Renal Program at the material time, instructed her to pay PDC. The trial judge found that Wu abused his position of trust and authority as the Medical Director of the Renal Program to direct public funds from the Hospital to PDC.

[43] In short, nothing in the May 2000 Email or Memo supports an alternative theory favourable to the appellants. I would therefore dismiss this first ground of appeal.

The Trial Judge’s Interpretation of the Agreement does not Render it Illegal

[44] In the alternative, the appellants submit that the trial judge’s interpretation of the MOU results in an illegal agreement, because it would entail payment for “extra billing” for an insured health service rendered to an insured person, which is proscribed by the Canada Health Act, R.S.C. 1985, c. C-6 at ss. 18-21; see also Ontario’s Commitment to the Future of Medicare Act, 2004, S.O. 2004, c. 5, at s. 10.

[45] It is not necessary to address this argument in detail because it misconstrues the findings of the trial judge. The trial judge did not find that payments were for the provision of nephrology services; rather, she held that the provision of nephrology services was a criterion by which the payees of the rental premises (i.e. “the nephrologists”) were to be defined. The MOU was to offset overhead charges associated with the Hospital having to provide clinical services off-site.

[46] This position is supported by the trial judge’s calculation method for apportioning the damage award, namely each partner’s proportionate contribution to overhead expenses. Reimbursement was based on a formula derived from rental costs and the number of visits to the clinic. All five members of the CVNA partnership paid overhead costs and all five were entitled to compensation.

[47] I see no palpable and overriding error in her interpretation of the contract nor do the payments for overhead costs entail extra billing for the services provided. As such, I would dismiss the second ground of appeal.

The Respondents’ Claim is not Statute-Barred

[48] Finally, the appellants claim the trial judge erred in concluding that the respondents’ claims are not statute-barred. The appellants repeat the argument made at trial that the respondents’ claims were discovered in 2012, when Kim advised the respondents that he was receiving monies from Wu and, as such, they are statute-barred.

[49] The Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 4 and 5 (“the Act”), requires a party to have commenced their action within two years of “discovering” the claim. Section 5(1) of the Act provides that a claim is “discovered” on the earlier of (a) the day the person with the claim first knew (i) that the injury, loss or damage occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it, and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of these matters.

[50] For the actions to have been statute-barred, Perkins must have discovered his claim before March 17, 2013, while Boll must have discovered his claim before April 21, 2013.

[51] As outlined above, Kim recalled a meeting in 2012 but was not sure about the date or even the month. Moreover, at the time of the conversation, he did not know about the existence of the MOU or PDC, and he was “totally in the dark” about the nature and flow of funds from the Hospital. Perkins and Boll remembered Kim telling them that he was receiving cheques from Wu, and that there were monies flowing from the Hospital to some of the Partners. They both testified that Kim did not seem to understand why he was receiving the money, but the respondents believed it was related to his ongoing dispute with Wadgymar.

[52] The trial judge therefore held that the claim was not “discovered” until May 2013 after the respondents received a copy of the MOU and discovered the flow of funds from the Hospital to PDC. Until then, neither Kim nor the respondents knew anything about the source of the funds such that they were able to ascertain their legal rights. This therefore was the date they “ought reasonably to have known of the material facts necessary for a claim”: Crombie Property Holdings Limited v. McColl-Frontenac Inc. (Texaco Canada Limited), 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 35, leave to appeal refused, [2017] S.C.C.A. No. 85.

[53] The question of whether a limitation period expired prior to the commencement of an action is a question of mixed fact and law, subject to review for “palpable and overriding error”: Crombie Property Holdings, at para. 31, citing Longo v. MacLaren Art Centre Inc., 2014 ONCA 526, 323 O.A.C. 246, at para. 38.

[54] I see no such error in the trial judge’s assessment that at the time of Kim’s admission that he was receiving funds in 2012, the parties to the claim were unknown. So too was the purported basis for the payment of monies or her conclusion that the material facts necessary to bring a claim against PDC were not available until: (i) the respondents’ meeting with Hospital management on April 25, 2013, wherein they were apprised of money flowing from the Hospital to PDC; (ii) Perkins received a copy of the MOU by email on April 27, 2013; and (iii) he forwarded it to Boll in May 2013. For these reasons, I would dismiss this third ground of appeal.

F. Kim’s Appeal (COA-22-CV-0392)

[55] Kim filed a separate but related appeal against Perkins and Boll only. Although he settled the action brought by Perkins and Boll pursuant to a Pierringer agreement several months before trial, Kim claims that a portion of the interpleaded funds belong to him and that he did not waive any entitlement to those funds as part of his earlier settlement agreement. In other words, Kim’s share of the interpleaded MOU Funds was unfairly awarded to Perkins and Boll to help Wu and Wong satisfy their judgment.

[56] The uncontested expert report of the respondents showed that Kim was entitled to $240,599 over the relevant period (2006 to 2013). However, the Agreed Statement of Facts, which was accepted, provides that Kim was only paid $144,181.33 under the MOU. Kim therefore claims that the trial judge’s finding that he received his fair share considering the accrued interest over time constitutes a palpable and overriding error.

[57] The respondents take no position on Kim’s appeal as they submit that the appellants in the main appeal (PDC, Wu and Wong), who are responsible to pay the judgment in the main action, have sufficient assets to pay the judgment regardless of whether any of the funds paid into court are used to satisfy Kim’s appeal.

[58] I would therefore allow the Kim appeal.

G. Conclusion

[59] For the above reasons, the appeal in docket number C70874 was dismissed. On agreement of the parties, I would award costs in the amount of $25,000 to the respondents. I would grant the appeal in COA-22-CV-0392 and issue an order entitling Kim to 15.27% of the interpleaded MOU Funds, plus interest, with no costs on that appeal.

Released: June 6, 2023 “K.M.v.R” “Thorburn J.A.” “I agree. K. van Rensburg J.A.” “I agree. David M. Paciocco J.A.”

Footnotes

[1] Costs were awarded to the respondents on a substantial indemnity basis, with reasons reported at 2022 ONSC 3818.