ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 11-CV-442727
DATE: January 25, 2012

BETWEEN:

Orit Gal
Plaintiff

• and -

Tova Lavine also known as Kova Kaslassi, The Early Years Day Care Centre Ltd. and The Early Years Education Centre Ltd.
Defendants

COUNSEL:

• Anton M. Katz for the Plaintiff, Orit Gal
• Ryan Hanna for the Defendant Tova Lavine

HEARING DATE: January 19, 2012

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[ 1 ] All the king's horses and all the king's men couldn't put Humpty together again.

[ 2 ] The defendant, the Early Years Day Care Centre Ltd. (“Day Care Centre”) and the defendant, the Early Years Education Centre Ltd. (“Education Centre”) operate three day care centres. The Plaintiff, Orit Gal owns 51% of the shares of the Day Care Centre, and she owns either 50% or 51% (her position) of the shares of the Education Centre. The Defendant, Tova Lavine owns 49% of the shares of the Day Care Centre and either 49% or 50% (her position) of the shares of the Education Centre.

[ 3 ] The business relationship between Mrs. Gal and Ms. Lavine deteriorated, and Mrs. Gal exercised self-help and purported to remove Ms. Lavine as an officer, director, and employee of both defendant corporations. She changed the locks and the bank accounts for the day care centres. Mrs. Gal also hired a security guard to ensure that Ms. Lavine did not have access to the centres. Mrs. Gal distributed correspondence to the staff and to the children’s parents stating that Ms. Lavine was no longer an employee of the corporations. Further, Mrs. Gal sued Ms. Lavine for an oppression remedy and for declarations consistent with the steps she had taken as a matter of self-help.

[ 4 ] For her part, Ms. Lavine as a defendant and a prospective plaintiff-by-counterclaim brings a motion for an interlocutory injunction to restore the status quo that existed before she was dismissed from employment and deposed as a director and officer. Mrs. Gal brings a cross-motion to restrain Ms. Lavine from restoring the status quo, for an order directing a valuation of her shares and their sale to Mrs. Gal or to the treasurer of the corporate Defendants.

[ 5 ] For the reasons that follow, I am granting both the motion and the cross-motion -but each only in part.

[ 6 ] The order that I will make will not restore the status quo to the situation before the hostilities between the parties; rather the order will level the playing field in the dispute between Mrs. Gal and Ms. Lavine about the future of their corporations.

B. FACTUAL BACKGROUND

[ 7 ] For the purposes of deciding the motion and the cross-motion, both of which seek interlocutory injunctive relief, it is sufficient to summarize the acrimonious dispute between the parties and to leave for another day the details and merits of the mudslinging and character attacks.

[ 8 ] Ms. Lavine is a single parent with three dependents ages 23, 16, and 11. She lives in a mortgaged home. Her income from the day care centres is her only source of income. She says that until September 2011 her salary was $2,500 per month but that the parties, in September 2011, agreed to increase her salary to $3,900, of which one payment was made. Her source of transportation is a vehicle owned by the Education Centre.

[ 9 ] Mrs. Gal is educated as a teacher having attended teacher’s college in Israel. She is married to Yossi Gal and they have a son and a daughter. Mr. Gal has supplied a great deal of unpaid labour for the day care centres.

[ 10 ] Mrs. Gal and Ms. Lavine at one time were friends. In 2005, Mrs. Gal, who had been operating a 10-child day care in her home, and Ms. Lavine, who was a teacher’s assistant at an elementary school decided to go into business together to operate a day care centre, and the Day Care Centre, an Ontario corporation, was incorporated in May 2005 as the corporate vehicle for their business. The Day Care Centre operates a day care centre at leased premises at 11130 Yonge Street, Richmond Hill.

[ 11 ] In September, 2005, Mrs. Gal and Ms. Lavine signed a unanimous shareholder’s agreement with respect to the Day Care Centre. The Shareholders’ Agreement requires co-operation and unanimity for most, if not all decision, about the operation and undertaking of the day care centre.

[ 12 ] Mrs. Gal’s primary role was managing the business and financial aspects of the day care centres. Ms. Lavine’s primary role was managing the staff, directing the programs to be offered for the children, and responding to the questions and concerns of the parents who had enrolled their children at the centres.

[ 13 ] In 2007, the Day Care Centre added a second centre at the same Richmond Hill address in another leased premises.

[ 14 ] In 2009, the Education Centre was incorporated to operate a third day care centre at 163 King Road, Richmond Hill. There is no shareholders’ agreement with respect to the Education Centre. Mrs. Gal submits that she owns 51%, but Ms. Lavine says that the ownership of the Education Centre is 50-50.

[ 15 ] The initial day care centre has a licence for 58 children. The second centre has a licence for 62 children. The third centre has a licence for 80 children. There are 35 employees that receive a gross monthly salary of $80,000. From a management and operational perspective, the three centres operate together as a single entity. The Day Care Centre and the Education Centre has borrowed approximately $255,000 from Mrs. Gal and approximately $60,000 from Ms. Lavine, which she paid through a personal line of credit.

[ 16 ] In September 2011, the business relationship and the friendship of the parties deteriorated and became acrimonious and dysfunctional.

[ 17 ] Mrs. Gal’s position is that Ms. Lavine fundamentally breached the Shareholders’ Agreement and that the agreement, which agreement she says applied only with respect to the Day Care Centre, has been discharged. Mrs. Gal submits that the Shareholders’ Agreement is no longer enforceable. Mrs. Gal accuses Ms. Lavine of a litany of breaches of fiduciary duty and misconduct with respect to the operation of the day care centres. Ms. Lavine’s denies any breaches, and her position is that the Shareholders’ Agreement has not been discharged and applies to both corporations. Ms. Lavine accuses Mrs. Gal of a litany of misconduct with respect to the operation of the business of the day care centres.

[ 18 ] Between September 2011 and November 2011, the parties attempted to negotiate a settlement of their dispute that would see just one of them owning the day care centres.

[ 19 ] On November 18, 2011, there were shareholders’ meetings of the corporate Defendants called by Mrs. Gal. Ms. Lavine did not attend the meetings, and the meetings proceeded in her absence. At the meetings, Ms. Lavine was removed as a director and then at the directors’ meetings she was removed as an officer. Mrs. Gal’s husband was elected a director and appointed an officer to replace Ms. Lavine in both corporations.

[ 20 ] Ms. Lavine was not told about the outcome of the shareholders’ meetings and in December 2011, the parties continued to negotiate in an attempt to settle their dispute.

[ 21 ] The December 2011 negotiations did not produce a settlement, and on the morning of December 22, 2011, a security guard prohibited Ms. Lavine from entering the centre at 11130 Yonge Street, Richmond Hill. The guard delivered a letter from Mrs. Gal stating that Ms. Lavine’s employment had been terminated. A letter to this effect was also delivered to the staff at the day care centres and sent to the parents as an e-mail attachment. The locks at the day care centres were changed. The bank accounts were changed. At the urging of Mrs. Gal, the police contracted Ms. Lavine and told her to return the corporation’s vehicle. Later in the day of December 22, 2011, Mrs. Gal commenced the action that is now before the court.

[ 22 ] As a defendant and a prospective plaintiff-by-counterclaim, Ms. Lavine brings a motion for an interlocutory injunction to restore the status quo that existed before she was dismissed from employment and deposed as a director and officer. Mrs. Gal brings a cross-motion to restrain Ms. Lavine from restoring the status quo, for an order directing a valuation of her shares and their sale to Mrs. Gal or to the treasurer of the corporate Defendants.

C. DISCUSSION

[ 23 ] From my review of the evidentiary record for the motion and the cross-motion and from reading the factums and hearing counsel for the parties, three things seem certain: (1) there are serious allegations made by both parties of breaches of contract, breaches of fiduciary duty, and oppressive conduct; (2) the relationship of trust and confidence between Mrs. Gal and Ms. Lavine has broken down and continuing in business together is dysfunctional and not feasible; (3) the present situation is intolerable to both parties.

[ 24 ] The test for an interlocutory injunction set out by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 SCC 117, [1994] 1 S.C.R. 311 has three elements: (1) a serious issue to be tried or, for some situations, a strong prima facie case; (2) irreparable harm; and (3) the balance of convenience favouring the granting of the injunction.

[ 25 ] There are before the court competing motions for interlocutory injunctions, and in my opinion, the motions turn on the balance of convenience element. In both motions, there are undoubtedly serious issues to be tried, and in my opinion both parties have shown a prima facie case that their foe has breached the unanimous shareholders’ agreement and fiduciary duties owed one to another or to their corporations.

[ 26 ] Given the dysfunctional business and personal relationships, each party will suffer irreparable harm if the pre-September 2011 or November 2011 status quo is restored and they are forced to work together and Ms. Lavine will suffer irreparable harm if she is not restored to her positions at the day care centres.

[ 27 ] Turning to the balance of convenience, whether the day care business is worse off without Ms. Lavine, I cannot say, but the business seems to be getting on without her. The parties already understand that for the business to survive only one of them should be owner. Bringing the parties back together under the same roof will likely destroy their day care business.

[ 28 ] Both parties will be inconvenienced by granting or by refusing to grant their requests for interlocutory injunctions, most particularly if the court was limited to the choice of dismissing one motion and granting the other. However, the court’s remedial response is not so limited. Section 101 of the Courts of Justice Act, R.S.O. 1990, c. 46 states:

101 (1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver or manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

(2) An order under subsection (1) may include such terms as are considered just.

[ 29 ] There is also before the court an application for an oppression remedy under s.248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. Subsection 248 (3) empowers the court to make any interim or final order it thinks fit. Subsection 248 (3) states:

Court order

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

(a) an order restraining the conduct complained of;

(b) an order appointing a receiver or receiver-manager;

(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

(d) an order directing an issue or exchange of securities;

(e) an order appointing directors in place of or in addition to all or any of the directors then in office;

(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;

(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;

(h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

(i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 154 or an accounting in such other form as the court may determine;

(j) an order compensating an aggrieved person;

(k) an order directing rectification of the registers or other records of a corporation under section 250;

(l) an order winding up the corporation under section 207;

(m) an order directing an investigation under Part XIII be made; and

(n) an order requiring the trial of any issue.

[ 30 ] In the circumstances of this case, in my opinion, both parties have established that some injunctive relief is necessary so that the court can ultimately do justice, but neither party has established that she should receive all the relief respectively requested.

[ 31 ] In these circumstances, I shall exercise the court’s jurisdiction to grant an injunctive or interim order and to impose terms that are just or fit. I, therefore, make the following order:

• The parties shall within 20 days settle a timetable for this action, failing which either party may apply to a master of this court to establish a timetable for the action.

• The parties shall within 20 days retain an impartial valuator to appraise the value of a 50% interest in the Child Care Centre and in the Education Centre, failing which either party may apply to the court for the appointment of the valuator.

• The Child Care Centre and the Education Centre shall pay the valuator for his or her fees and disbursements.

• The Education Centre shall transfer ownership of the vehicle now in the possession of Ms. Lavine to Ms. Lavine for a purchase price to be determined in the future as a part of the determination of the claims between the parties.

• Pending the trial or settlement of this action, the Child Care Centre and the Education Centre shall pay Ms. Lavine a monthly income of $3,900 and maintain Ms. Lavine’s employee benefits, if any.

• Pending the trial or settlement of this action, the Child Care Centre and the Education Centre shall pay the monthly interest charges on $60,000 of Ms. Lavine’s line of credit.

D. CONCLUSION

[ 32 ] Order accordingly with costs in the cause fixed at $16,000, all inclusive.

Perell, J.

Released: January 25, 2012

COURT FILE NO.: 11-CV-442727
DATE: January 25, 2012

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Orit Gal
Plaintiff

‑ and ‑

Tova Lavine also known as Kova Kaslassi, The Early Years Day Care Centre Ltd. and The Early Years Education Centre Ltd.
Defendants

REASONS FOR DECISION

Perell, J.

Released: January 25, 2012