SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 10 CV 408862
DATE: 2012/12/03

RE: NAVRAB INVESTMENTS INC. v. KOSHY CHERIAN VAIDYAN

BEFORE: MOORE J.

COUNSEL:
David N. Vaillancourt, for the Plaintiff
Diane Evans, for the Defendant

E N D O R S E M E N T

[ 1 ] Thievery is admitted in this case but questions remain, such as how much money has Mr. Vaidyan taken from Navrab Investments Inc. (“Navrab”), his former employer, and what consequences should befall him.

[ 2 ] Navrab operates the Rabba Marché store, also known as Rabba Fine Foods, at 361 Front St West in Toronto, where Mr Vaidyan worked as a night manager between 1 April 2006 and 3 January 2009 when he allegedly stole $78,466.30

[ 3 ] Navrab now claims damages in conversion, fraud and breach of fiduciary duty in the net amount of $70,699.93 plus punitive damages of $25,000.00 and a declaration that the damages sought arise from fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity within the meaning of Section 175(1) (d) of the Bankruptcy and Insolvency Act [1] and shall survive Mr Vaidyan’s bankruptcy.

[ 4 ] Navrab asserts that Mr Vaidyan stole by scanning transactions into the store register or cash machine and then later voiding the transactions and pocketing his employer’s money.

[ 5 ] Mr Vaidyan was charged with criminal offences arising from this conduct and he pleaded guilty to one charge of theft; he was convicted and sentenced to three years probation and ordered to make restitution to Navrab in the amount of $4,999.00. He paid back that amount and credit is given him in Navrab’s calculations of damages still owing in this matter.

[ 6 ] The guilty plea was based upon agreed facts. As will be seen later in these reasons, the facts agreed to in the criminal proceedings are important to an appreciation of the process by which Navrab’s money was stolen and important to an appreciation of the accuracy and completeness of Mr Vaidyan’s evidence before me as well.

[ 7 ] The facts read into the court record at the 17 August 2009 hearing before the Honourable Justice Ray on Mr Vaidyan’s plea to the theft offence can be summarized as follows:

Mr Vaidyan was employed at Rabba Fine Foods for about seven years. He worked in several different Rabba franchised store locations as the night manager. When the Rabba store at 361 Front Street West opened at that location, he was given a full managers position to oversee the night to night operations. As such he was given a special authority, the manager’s access code, to void or over-write amounts on the cash register.

On Saturday, January 3, 2009, at approximately 2:20 AM, Mr Vaidyan was observed taking $50.00 cash from the cash register and putting it in his pocket. At approximately 4:00 AM on the same night he was again observed taking a quantity of cash out of the cash register and putting it in his own pocket.

The district manager observed the entire transactions live from a surveillance camera which was installed specifically to monitor the on-going theft in the store. As a result police were notified and subsequently Mr Vaidyan was arrested at the scene.

Further investigation revealed that he had been stealing money by way of entering merchandise in the cash register and voiding them later on his own time to pocket the differences. The dollar amounts pocketed amount to at least over $5000 since his managerial position at that location began on October 31, 2002.

Mr Vaidyan holds a night manager’s position overseeing the daily operation of the business and was entrusted with valuables, security, staff and money by special access and keys to the premises. He breached those trusts for his personal gain and he was charged accordingly.

[ 8 ] Evidence was tendered at this trial by through only two witnesses, Mr Rabba for Navrab and Mr Vaidyan on his own behalf.

[ 9 ] Mr. Rabba is the president of J. Rabba Company Limited, the company commonly known as Rabba Fine Foods. It is a family business that his grandfather started in 1967 and that he has been personally involved in since age 13. The company has 35 owned and franchised stores throughout the Toronto area.

[ 10 ] Mr. Rabba's role is to oversee general operations of the business. He has been 10 years in his current position. He described having learned the business from the ground up and having occupied virtually every position in the business from warehouse work, cashier work and everything else up to his current position.

[ 11 ] I found Mr Rabba’s evidence to be most helpful. He came well prepared, armed with a thorough knowledge of the Navrab business model and of the facts at issue in this matter. He was poised, professional and responsive in his presentation. He testified in an objective, considered and balanced fashion. I accept his evidence completely and certainly favour it where it conflicts with Mr Vaidyan’s evidence.

[ 12 ] He explained that Navrab operates one store located at 361 Front Street in Toronto. That store opened in October of 2003 and Mr Vaidyan, who had worked in Rabba stores previously, transferred to the Navrab Rabba store at the time it opened and continued to work there in a management capacity until his termination at the beginning of 2009.

[ 13 ] Mr. Vaidyan was employed as a shift manager and worked at all times in that capacity on the night shift, also known as the midnight shift. Between midnight and 8 AM, he was responsible for the entire store. He was the ultimate authority figure during those hours overseeing staff, ensuring the safety of the store and the smooth, continual operation of the store.

[ 14 ] When any customer purchases products in a Rabba store, they are presented at the cash register and the cashier enters them by keying or scanning information into the cash register. Sometimes the cashier will make a mistake or the customer will decide against purchasing an item and the cashier can then push a particular key [a void key] to delete the item. If proper procedures are followed, multiple items are not voided in one transaction.

[ 15 ] Where multiple items need to be voided or an entire transaction is to be voided, only a manager has the authority, the user name and system password and the discretion to do so. In these instances, the power to void is granted to a few trusted individuals in a given store, people of manager level, generally one person per shift.

[ 16 ] In November of 2008, Rabba initiated a procedure within its accounting department to measure and track cigarette inventory counts and found losses were occurring. That initiative discovered that the 361 Front Street store was showing constant week over week losses indicative of product shrinkage from inventory. It took some weeks to notice a pattern and to get an investigation underway.

[ 17 ] The investigation involved review of in-store videotapes to determine whether staff members were doing anything unusual or suspicious. The investigation came to Mr. Rabba's attention and he immediately attended at the Navrab store and reviewed the tapes personally there. He noted that customers took items to the cash register when Mr. Vaidyan was serving as cashier. Customers paid for items, received change as necessary and then left. Later, Mr. Vaidyan would void the transaction or item and remove cash from the register. In the result, there would be no reference on the permanent Rabba computer system record of transactions cross-referencing the customer transaction with money actually remaining in the till.

[ 18 ] It seemed to Mr. Rabba that Mr. Vaidyan was deliberately trying to hide his behaviour from other employees who he would, for example, send out to collect garbage before he took money out of the till.

[ 19 ] Mr. Rabba described his analysis of the losses demonstrated from his company's investigation and review of almost 6000 pages of business records.

[ 20 ] In the period between April and December of 2006, for example, $18,884.12 was the value of voids made by Mr. Vaidyan. No records were available before April of 2006 and so whether or to what extent, Mr. Vaidyan initiated voiding activity earlier on could not be reviewed or demonstrated.

[ 21 ] Mr Vaidyan’s voids in 2007 totaled $28,408.19 and in 2008 they totaled $31,149.33.

[ 22 ] The gross total value for Mr Vaidyan’s voids for the three years in question amounts to $78,441.64. But Navrab recognizes that a certain level of voids is inevitable in the ordinary course of its business and so its claim was calculated by deleting from Mr Vaidyan’s total, the value of his voids that appear on their face to have been valid and by a further amount equal to the voids effected by other comparable employees and also by the money that Mr Vaidyan actually paid back to Navrab in restitution. The net amount claimed for Navrab’s damages therefore totals $70,699.93.

[ 23 ] Mr. Vaidyan had a unique username and password and so transactions that he initiated as a cashier could be analyzed from the permanent record of all transactions generated by the store after April of 2006. As well, voids that he initiated could be found and documented. Three employees under Mr. Rabba's direction undertook this analysis from available records in the years 2006 through 2008.

[ 24 ] Mr. Rabba testified that no other employee would know Mr. Vaidyan's username or password and it is therefore improbable that transactions in his name could or would have been initiated by others. To the suggestion that a cashier might know and use Mr. Vaidyan's code to void multiple items, Mr. Rabba agreed that that could be possible but it would be contrary to company procedures and protocols. He agreed that the protocols were not reduced to writing but he said that providing a level IV void authority to someone with lesser level authority would comprise a breach of confidentiality and breach of what he is certain would have been verbal and tacit agreement between employer and employee not to give cashiers authority above their level.

[ 25 ] Mr. Rabba confirmed that Mr. Vaidyan was employed in a position of trust and of responsibility for the store during the night shift. His responsibilities included working on cash, in the deli and elsewhere. On cash, he had a level IV authorization which entitles him to void transactions and multiple items within a given transaction. An ordinary cashier had a lesser authority of level II. Only the store manager had a higher authority in the store and that was level V. The store manager gave passwords with void capability or authority to each employee in the store.

[ 26 ] Mr. Rabba agreed that the store at 361 Front Street is different from typical Rabba stores because of its location, that it sells more prepared food and produce and that it has a robust late-night business. He also agreed that on the night shift customers could present in a state of inebriation and that could lead to many voids being required. But, he added, the question is not whether voids occur but what is a reasonable number of voids?

[ 27 ] In order to better understand Mr. Vaidyan's voiding practice, he was compared against six other employees in a random analysis. All of the other employees possess managerial authority and all had at least one year of experience on cash register work and the responsibility to train other employees on cash. The analysis showed that Mr. Vaidyan's voiding behaviour generated substantially higher void numbers (of both transactions and values of voids) than that of any of the other employee selected and higher than the average of the six specific comparator employees as well. Whereas the other employees voided 43 of 12,134 items sold [a 0.35% ratio], the selected shifts chosen at random for Mr. Vaidyan showed that he voided 653 of 5853 items sold [a 10.04% ratio]. Therefore Mr. Vaidyan voided about 30 times more items than normal.

[ 28 ] In his review of Rabba's business records, Mr. Rabba also noted unusual voiding behaviour by Mr. Vaidyan. On one occasion, Mr. Vaidyan voided three transactions in a row. On another occasion, he ran multiple cash summary reports on one shift for no apparent reason. Mr Rabba found these behaviours interesting and consistent with fraudulent activity, a red flag from a loss prevention standpoint.

[ 29 ] On every transaction, the cashier is to provide a receipt to the customer. Mr. Rabba observed on video, however, that Mr. Vaidyan did not always provide receipts. He added that it is the natural behaviour of a person committing fraud not to give a receipt to a customer. Mr. Rabba also observed Mr. Vaidyan on video to have conducted transactions with the cash drawer open. He explained that that practice provided an easy opportunity to manipulate cash and later void transactions in order to correlate cash to sales records.

[ 30 ] The store at 361 Front Street performed very well over the years between 2006 and 2009. In those years, it averaged $5.5 million per year in sales. The transactions that Mr. Vaidyan voided in those years amounted to less than one half of 1% of total sales but as he was employed in that store from the outset, his voiding practices and money that he may have removed from the cash register over time, if consistently undertaken, could well have defeated the quarterly analysis of store performance that the business undertook. The loss prevention department would investigate a drop in store performance but a consistent performance could defeat such investigation.

[ 31 ] Mr. Vaidyan testified on his own behalf in this trial. He was a soft-spoken witness who gave his evidence very quickly and in a monotone. He contradicted himself in comparison to the position he adopted in agreeing to facts for purposes of his criminal proceedings and to evidence he gave on his examination for discovery. Having agreed in the criminal court that his thefts totaled at least $5,000 since his managerial position began on 31 October 2002, he maintained at this trial that he stole only $1,190 in total and that he only stole money between September and December of 2008. He maintained that he trained new employees frequently, as the turnover rate at the Front Street store was very high but admitted his discovery evidence was accurate and it confirmed a training pattern of much lower frequency.

[ 32 ] His evidence lacked an air of plausibility when he explained his reason to steal as involving a plan to apply for a government job that would not pay him income during his employment while training in Quebec. In this area and others he did not well withstand cross examination.

[ 33 ] In order to land that job, he had to pass a six hour long exam and go through an interview process. He had failed the exam once before. Why he decided to steal from Navrab on his second attempt for this job but not on his first attempt is a question unanswered.

[ 34 ] On the whole, Mr Vaidyan’s evidence lacked the clarity and credibility that marked Mr Rabba’s. Nor was Mr Vaidyan’s evidence corroborated by independent evidence of others. He insisted that he kept his stolen money in an envelope and offered it to a police detective for return to Navrab but the detective was not called. He offered no explanation for why his voids were so much more numerous than those of other employees and called none of them to assist him. He offered no analysis of the Navrab business record productions, expert or otherwise, to forward a preferable damages assessment approach.

[ 35 ] His evidence of what happened in criminal court was entirely self-serving and unconvincing. He intimated that he may not have clearly understood the ramifications of agreeing to the facts read in as evidence on his guilty plea. He said that his lawyer may have read those facts to him before they were read out in court. In any event, he chose not to call evidence from that lawyer in this trial.

[ 36 ] He was vague when pressed on matters that did not assist his case. He testified that other employees could use his cash machine under his password and void code while he was on a smoke break or busy sweeping the store. When pressed however, he agreed that there were other cash machines in the store that other employees could use and that each employee on his shift had a separate login number and personal password. He offered no plausible explanation for how other employees could know and/or use his void code at all.

[ 37 ] He agreed in cross examination that his level of voiding transactions was greater than any of the other employees referred to in the evidence at trial and he agreed that his level of voiding at 10% looks bad for him.

[ 38 ] Mr Vaidyan’s evidence therefore helps very little on either liability or damages issues. As noted above, Mr Rabba’s evidence is preferable by far. The thefts that Mr Vaidyan did admit to he achieved through the voiding process that Mr Rabba described having seen on surveillance videos. So the method is confirmed, the quantum is disputed.

Analysis

[ 39 ] In my view, the analysis undertaken under Mr Rabba’s direction to quantify Navrab’s losses from Mr Vaidyan’s misappropriation of money is fair, reasonable and generates a sum total that, on balance of probabilities, represents the amount of money improperly taken from Navrab.

[ 40 ] I do not accept the argument that Navrab must demonstrate inventory losses equating in value to the voids generated by Mr Vaidyan before it can recover damages in this case. To begin with, there is no evidence before me that an inventory analysis was possible, economically feasible, helpful or in keeping with good business practices. In any event, Mr Rabba’s evidence confirms that an inventory analysis would be infected by spoilage, breakage and removal of foods for processing for sale as prepared foods, to name a few difficulties with the process.

[ 41 ] Navrab did undertake an inventory analysis of cigarettes in November 2008 and it was this that led to the investigation that brought Mr Vaidyan to justice. I am not prepared to find that Navrab should or could have undertaken a further or different inventory analysis.

[ 42 ] Navrab has produced literally thousands of pages of transactions demonstrating Mr Vaidyan’s voiding practices throughout the entire time that such records are available. There is no confirmation to be seen in those records of the thefts that he admits to; rather, there is a clear pattern established of a consistent voiding practice in each of the years 2006 through 2008. Indeed, Mr Vaidyan’s voids grew in number year over year. He so outpaced other employees that the only logical explanation is that he was throughout engaged in a process aimed at misappropriating money from his employer.

[ 43 ] Navrab has done its best to establish a fair quantum of damages in this case. It has been hampered by Mr Vaidyan’s denials and the fact that the process he employed left no paper trail other than the one Navrab has been able to produce. Nevertheless, in matters such as this, where the assessment is difficult because of the nature of the damage proved, the difficulty of assessment is no ground for refusing substantial damages even to the point of resorting to guess work. [2] The statistical evidence adduced by Navrab in this case affords a high degree of comfort in my determination of substantial damages; it is far from guesswork.

[ 44 ] Navrab has undertaken its analysis based upon the best evidence available to it and employed a reasonable and fair approach. [3] In the result, I am persuaded to assess Navrab’s damages upon the basis described in Mr Rabba’s evidence and as summarized in paragraph 22, above, in the net amount of $70,699.93.

[ 45 ] Although there is no suggestion that or when Mr Vaidyan will become bankrupt, Navrab asks for a declaration under the Bankruptcy and Insolvency Act [4] that an order of discharge not release him from any debt or liability arising out of the fraud giving rise to this case. In order to engage the provisions of Section 178(1)(d), I must determine whether Mr Vaidyan stole from his employer while acting in a fiduciary capacity.

[ 46 ] Mr Vaidyan submits that he is but a humble employee and, so far as he was concerned, not a real manager. He insists that everyone who steals from an employer is not automatically a fiduciary and not every theft involves a breach of fiduciary duty.

[ 47 ] Mr Vaidyan’s submissions miss the mark. By his own admissions in the criminal proceedings, he held a night manager’s position overseeing the daily operation of the business and was entrusted with valuables, security, staff and money by special access and keys to the premises. He breached those trusts for his personal gain and he was charged accordingly.

[ 48 ] These facts are confirmed by the evidence of Mr Rabba and in Mr Vaidyan’s cross examination evidence where he agreed that he even owed Navrab a duty to detect and prevent loss by theft in the store. I find that Mr Vaidyan held a position of trust over the entire operations of the store during his shifts and stealing his employer’s money during his shifts constitutes a breach of that duty. [5]

[ 49 ] Navrab is therefore entitled to the declaration sought and the judgment in this matter will survive Mr Vaidyan’s discharge from bankruptcy.

[ 50 ] Navrab further seeks an order for punitive damages in the amount of $25,000. It argues that the conduct at issue in this case was dishonest, high handed, fraudulent and deceptive. It involved a series of egregious breaches of trust extending over at least 2 ¾ years and probably longer. It points to a lack of contrition on Mr Vaidyan’s part and asserts that it was completely vulnerable to the losses incurred by investing its trust in him.

[ 51 ] Navrab further asserts that the oft quoted goals of punishment, deterrence and denunciation would be appropriately advanced by a punitive damages award in this case. I disagree.

[ 52 ] The law is well summarized in the cases to which Navrab refers. [6] Neither case involves awarding punitive damages in situations where a criminal court has already convicted the defendant and meted out punishment for the very conduct complained of later in a civil suit.

[ 53 ] The discretion to award punitive damages is to be exercised carefully for such damages are very much the exception rather than the rule and they are to be awarded only where the misconduct would otherwise be unpunished. These are but two of the eleven points of guidance given us by the Supreme Court of Canada in Whitten [7] and it seems that since Whitten the Court has raised the threshold for conduct that would merit an award for punitive damages. [8]

[ 54 ] Mr Vaidyan carries with him the stigma that attaches to a criminal conviction and in the circumstances of this case that represents a substantial punishment indeed which I view as entirely adequate to achieve the objectives otherwise advanced by an award of punitive damages.

[ 55 ] While Mr Rabba is not aware of Navrab receiving an apology and while there is no corroboration of his evidence that Mr Vaidyan apologized to a Navrab manager for his conduct, it is uncontroverted that he promptly paid back almost $5,000, the retribution ordered by the criminal court. In so doing, he has disgorged the advantage or profit gained by the conduct that underlay the criminal charge. He was a minimum wage employee, a man of modest means. He now faces an obligation to make Navrab whole on the rest of its loss.

[ 56 ] Having regard to the outcome of the criminal charge, the outcome of this case and the factors enunciated in Whitten , I am not prepared to award punitive damages to Navrab.

Disposition

[ 57 ] Navrab shall have judgment against Mr Vaidyan for damages in the sum of $70,699.93 plus applicable prejudgment interest thereon.

[ 58 ] The judgment shall contain a declaration that the liability of the Defendant to the Plaintiff is a liability arising out of fraud while acting in a fiduciary capacity as described in the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, and shall survive any bankruptcy of the Defendant.

[ 59 ] Navrab shall recover costs of the action. If the parties cannot agree upon an appropriate assessment of costs, I may be spoken to.

Moore J.

DATE: 3 December 2012

[1] R.S.C. 1985, c. B-3

[2] Martin v. Goldfarb , 1998 4150 (ON CA) , [1998] O.J. No. 3403 (C.A.) at p. 26; Rosenhek v. Windsor Regional Hospital , 2010 ONCA 13 , [2010] O.J. No. 129 (C.A.) at paras 37-43 .

[3] Canada Safeway Ltd. v. Brown, [2007] B.C.J. No. 2400 (S.C.) at para 17 ; 581257 Alberta Ltd. v. Aujla, [2011] A.J. No. 81 (Q.B.) at para 59 .

[4] Ibid

[5] South Nahanni Trading Co. v. Gravel, [2007] O.J. No. 3007 (S.C.J.) at paras 8 , 12 and 13.

[6] Jefflin Investments Ltd. v. Crown Grading & Sodding Ltd., [2009] O.J. No. 5348 (S.C.J.) and Elekta Ltd. v. Rodkin 2012 ONSC 2062 , [2012] O.J. No. 1439 (S.C.J.) ,

[7] Whitten v. Pilot Insurance Co., 2002 SCC 18 , [2002] 1 S.C.R. 595

[8] Jefflin, supra, at para 20.