COURT FILE NO.: 07-FA-015184FIS
DATE: 20121205
ONTARIO
SUPERIOR COURT OF JUSTICE
FAMILY LAW
BETWEEN:
JOYCE IVY LINETT, Applicant – and – MARC HARRY LINETT, Respondent
L. Leslie Dizgun and Kristy A. Maurina , Co-Counsel for the Applicant, the Moving Party
Kenneth Cole and Allison Kotler , Counsel for the Respondent on the Motion
Mark S. Shapiro , Counsel for Robert Karoly, a proposed Respondent
Ron E. Folkes , Counsel for 606314 Ontario Limited, a proposed Respondent
HEARD: NOVEMBER 5, 2012
ENDORSEMENT: GREER J. :
[ 1 ] The Applicant, Joyce Ivy Linett (the “former Wife”) moves to add Robert Karoly, 606314 Ontario Limited, The Linett Family Trust, The Karoly Family Trust, Rose Anne Karoly, Tempra Management Ltd. and Tri Word Marketing Corporation as Respondents in this action.
[ 2 ] The Respondent, Marc Harry Linett, (the “former Husband”) and the former Wife have been in litigation for many years respecting their marriage breakdown and the issues arising out of that event. The former Husband is a lawyer and at one point was in partnership with the proposed Respondent, Robert Karoly. The two lawyers entered into some estate planning, out of which arose The Linett Family Trust and The Karoly Family Trust. The company 606314 Ontario Limited (“#606”) had two subsidiaries, Tempra Management Ltd. and Tri World Marketing Corporation.
[ 3 ] The former Wife wants Robert Karoly (“Karoly”) added as she alleges acts of oppression by him in the operation of #606. The corporation owned a property known as 101 Richmond Street East in Toronto, the sale of which raised many questions in the mind of the former Wife, as it was a major asset in the scheme of the tax and estate planning, which took place.
[ 4 ] The former Wife alleges that there has been unpaid and uncollected rent owing with respect to that property by the former Husband’s law firm. Some of the Respondents she wishes to add to the proceeding also have interests in #606. She claims that interest and penalties were paid by #606 for the failure of those whose job it was to pay property taxes on the Richmond Street property. They let the taxes go into arrears, and the penalties and interest were levied and paid when the property was sold. There was also an unrealized potential gain on the sale of the Richmond Street property, and interest was never collected on shareholders’ loans on the corporate financial statements.
[ 5 ] Given that these problems have festered over many years, the former Wife now sees herself as an oppressed minority shareholder.
Some background facts
[ 6 ] The former Wife and former Husband were married on August 12, 1973, separated in December 1997 and were divorced on May 2, 2004. They entered into a Separation Agreement dated November 21, 2003. The couple have four children, namely Amanda now 36, Lauren now 34, Jordan now 33, and Justin now 29 years of age. They are collectively referred to as “the children” in this Endorsement. They are, I assume, contingent beneficiaries in The Linett Family Trust (“the Trust”), set up by their Father as part of the estate plan and tax planning. I say “assume”, as no one produced a copy of the Trust Agreement on the Motion.
[ 7 ] I am told that when the former Husband and Robert Karoly set up the family trusts, it was intended that the Trust would assist the children with their post-secondary education but this was not the sole purpose of the Trust.
[ 8 ] I am told that the shareholders of #606 are the two family Trusts and the two husbands, Linett and Karoly, and their respective then wives. The former Wife has made claims against the Trust for an accounting of its administration. She also asks for an Order removing the Trustee of the Linett Family Trust (which is said to be Robert Karoly) on the grounds of conflict of interest and failure to account.
[ 9 ] The former Wife also alleges that the former Husband repeatedly breached the terms of their Separation Agreement. She wishes Karoly to be added as he she says he participated in the breaches. She says that none of her claims against Karoly are a surprise to him.
[ 10 ] There is also an allegation by the former Wife that the former Husband’s law partnership never paid rent to #606, as it was supposed to do. She claims that the money is still owed to #606, and she wants the money to go to it so that she can then acquire her fair share of it as a shareholder. She claims that the corporation has taken no steps to collect the money. Needless to say, the former Husband is not moving to do this, even though some money would come to him.
[ 11 ] The Trial is scheduled to commence on March 20, 2013. Since the Family Law matter has been outstanding since 2007, it is in the best interest of everyone involved in the litigation to move the matter forward.
[ 12 ] The corporate scheme and the estate planning scheme was tax-driven from the outset and #606 was never an active corporation. The building on Richmond Street was sold in 2005/6, leaving cash on hand to be dealt with. I am told that there is approximately $405,000 being held in a trust account of Aird & Berlis LLP plus approximately $33,000 in accrued interest to date. There appear to be some outstanding debts as well regarding audit fees and legal fees.
[ 13 ] The former Wife also raises the issue of oppression by #606 against the minority shareholders. She claims that there are shareholder loans owed to #606 by Linett and Karoly individually and personally as well as the Trusts having an interest in #606 as shareholders. She says that there also has to be a corporate re-organization of #606 to satisfy CRA’s requirements for tax planning purposes.
[ 14 ] The proposed Respondents say that the former Wife knows all about what took place when the property was sold as she was a real estate agent at that point in time. She received the benefit of a commission on the sale of the property held in #606. They also say that the former Wife, as a director of #606 and one or more of the other corporations, knew what was going on in those entities. They say none of them should be added as Respondents.
Position of #606
[ 15 ] The corporation, #606, opposes being added as a party to the proceedings. It is prepared to be Questioned in accordance with a discovery plan and agrees to produce whatever documents are available and in its possession. It says it is harmful for the corporation to be involved in lengthy matrimonial litigation.
[ 16 ] It says the issue of corporate oppression ought to be on the Commercial List where it can best be dealt with. It says the issues of limitations and laches can be dealt with on the Commercial List.
[ 17 ] With respect to the re-organization issue and Closings, #606 says it has no objection to this but it must be dealt with on the consent of all the shareholders or participating parties, so that all are subject to the Court’s jurisdiction. Counsel for #606 says that 87½% of the controlling shareholders, have tried since 2010 to achieve the corporate Closings required to distribute the funds. The matter, however, has not moved forward.
Position of Robert Karoly
[ 18 ] Karoly is a director of #606, which was incorporated in 1984 to own the building and land at 101 Richmond Street East in Toronto. He sets out some of the history in his Affidavit sworn August 20, 2010. He is aware also of the lengthy matrimonial litigation that has taken place between the former Wife and former Husband. Karoly attaches to his Affidavit copies of a number of Judgments and Orders issued over the years in the lengthy proceedings. Among those is a Judgment of Madam Justice Horkins dated July 17, 2008, which directs that $957,728.04 held by two law firms shall be paid to #606 upon the maturity of a GIC in which the money was invested.
[ 19 ] Karoly really wears three hats, as he was a law partner of the former Husband and a Trustee of the Linett Family Trust as well as director of #606. He, however, says that many of the claims made by the former Wife are statute-barred pursuant to the provisions of the Limitations Act, 2002 .
[ 20 ] Karoly says that Tri World was a wholly owned subsidiary of #606 and has been dissolved. He gives no date. He says that it and Tempra, until 1998, served as management companies for the administration of the former law practice of Linett & Karoly. He says that the former Wife was a director of both companies and remains a director today of Tempra.
[ 21 ] Karoly confirms what the former Wife’s counsel says about the Minute Book of #606. It is said to be in “a state of shambles”. Karoly then says in his Affidavit:
While it is common ground that 50% of the common shares of the Corporation (#606) are owned by Karoly, Rose Anne and the Karoly Family Trust (collectively the “Karoly Family”), the ownership of the remaining 50% of the common shares as between the Respondent, the Applicant and the Linett Family Trust has been a matter of dispute between the Respondent and the Applicant since the breakdown of their marriage twelve years ago.
[ 22 ] Karoly also sets out in some detail how #606 was run and what new shares were issued as special voting shares in 1985, over which, he says, there is also a state of confusion. He claims that if the corporations and he are added as Respondents, the Court will have to go over 26 years of corporate records and financings in order to determine how the funds are to be disbursed and how the Corporate Closing is to be determined.
[ 23 ] Karoly says that the former Wife has not sought to add Rose Anne, the Karoly Family Trust and Tri World and Tempra as Respondents, but my reading of the Notice of Motion and Factum of the former Wife is that she is asking for that relief.
[ 24 ] Karoly also says that the former Wife’s claim of oppression by him as a director of #606 and its subsidiaries, is not something that should be in the family law proceeding, as she herself has been a director of these corporations.
[ 25 ] Karoly points out to the fact that the former Wife has begun a Civil lawsuit CV-11-439774 against the former husband, Karoly and Rose Anne Karoly, which is duplicating some of the relief the former Wife is asking for in her family law proceeding. The Application as far as I can see, was amended again in May of 2012.
The position of the Former Husband
[ 26 ] The former Husband acknowledges that the former Wife issued her Application in their matrimonial proceeding. He says that the 2010 Motion was then brought forward by her, which now attempts to add “not less than 15 new substantive issues.” He, also, acknowledges the new separate civil claim against the Karolys and him.
[ 27 ] The former Husband says that all the relief the former spouse asks for should be dismissed, including her claim to amend the Application. He does not see that these new claims are intertwined in the family law proceeding. He sees it all as trying to obstruct finalizing all matters in their matrimonial proceeding.
[ 28 ] The former Husband expands somewhat on what is in The Linett Family Trust, and the children as beneficiaries. He says the parties’ own matrimonial litigation was contingent upon the children “…agreeing to gift (sic) each of the parties $300,000 from that Trust”. He explains that he was to use his money from the Trust to pay back monies he owed to #606 and to effect the flow through transactions necessitated by the corporate closing of #606 so that the shareholders of the corporation could realize their monetary interest in it.
[ 29 ] The former Husband says in para. 16 of his Affidavit that the only thing remaining as outstanding in the parties’ litigation is “…the realization of shareholders’ interests as part of the corporate closing of 606314.” He sets out what has already taken place in the parties’ litigation, saying that the former Wife is making “unreasonable demands” and that her claims for oppression are not adequately identified. He also points to litigation that the former Wife started against him and his new law partner (now his wife) Timmis, which has not yet been concluded.
Analysis
[ 30 ] I conclude, based on the documentation before me and on my analysis of the case law and the application of the Family Law Rules , that the proposed parties, namely Karoly, the three corporations #606, Tri World Marketing and Tempra Management and The Linett Family Trust shall all be added as Respondents, for the reasons which follow. I dismiss that part of the former Wife’s Motion to add Rose Anne Karoly and The Karoly Family Trust as Respondents in this proceeding as they have no direct connection to the matrimonial litigation.
[ 31 ] Rule 2(2) of the Family Law Rules says the primary objective of the rules is to enable the Court to deal justly with cases, which includes the factors set out in subsection 2(3) to ensure the procedure is fair to all parties. It also looks to saving time and money for the parties, and dealing with the case in ways that are appropriate to its importance and complexity. Finally, the subrule says when giving appropriate court resources to the case, it must take into account the need to give resources to other cases.
[ 32 ] In the case at bar, it would be foolish to think that by having the oppression issue dealt with on the Commercial List and the Trust issues dealt with on the Estates List, that this was going to be less expensive and take less time. Firstly, the corporate issues are not complex. None of the proposed corporate Respondents are working and active companies. Two are subsidiaries of #606, and one of them is no longer in existence. Money is the only asset that any of them appears to have on the face of what was presented to me. Oppression remedies are often dealt with on the regular Civil List. Most Judges on our Court are generalists, who have experience in all areas of the law. Nothing in this case makes me see why it should be on the Commercial List. I am of the view that it would be turned away, if it moved to be added to that List. The oppression issue shall therefore be tried with the matrimonial litigation.
[ 33 ] Trust matters often crop up in Family matters. Again, if the issue of removal of a Trustee and an accounting is necessary, these can be done by the same Judge hearing the Family matter, by having all proper documentation filed with the Family Law Office.
[ 34 ] Under Rule 7(5) the Court has the power to order that any person who should be a party shall be added as a party, and may give directions for service on that person. The former Wife has made claims against #606, its two subsidiaries, The Linett Family Trust, and Karoly. Karoly plays a role in all those entities and is said to be a Trustee of the Linett Family Trust. The Trust is said to own shares of #606, and the other two corporations were involved in managing the old law practice of Linett & Karoly. That practice, by its partners, Linett and Karoly, did the estate planning (unless it hired independent counsel to give them advice) that led to the complexities that now face the former Wife.
[ 35 ] As noted by Madam Justice Marshman in Children’s Aid Society of London & Middlesex v. P.(J)., 2000 CarswellOnt 718, [2000] O.T.C. 139 (S.C.J.), at para. 4 , Rule 7(5) gives no direction as to how the Court should exercise its discretion in adding parties to a proceeding. She goes on to say that if the Rule is intended to give the Court broad discretion to add parties who have no legal interest in the issues before the Court then that discretion ought to “be exercised very sparingly.” In the case at bar, the link amongst all of these added parties and the former Wife and former Husband is an interest in the remaining money, to which each of the former Husband, and Wife, The Linett Family Trust and the shareholders of #606 and/or their subsidiaries has an interest.
[ 36 ] The former Wife has made claims against all of them and they shall therefore be added as Respondents. Even if the claims appear tenuous to some, in my view, there is nothing about the claims that is so outrageous that the claims would be struck before the newly added Respondents have even pleaded. All of the proposed Respondents are the entities or persons who have the information and/or controlled that information in the past, which has led the former Wife to claim oppression as a minority shareholder. How can her claim against the former Husband with respect to the Separation Agreement issue, and her claim as a beneficiary of The Linett Family Trust, be dealt with other than having the tangled corporate web as to what monetary interest the former Husband has in all of this at the date of separation, if these entities are not before the Court? See: Noik v. Noik , 2001 CarswellOnt 324, 14 R.F.L. (5 th ) 370. I do not see that the former Wife’s claims can properly be dealt with otherwise.
[ 37 ] Karoly says that the Court will have to do the accounting involving these entities and the shareholdings and money issues. In my view, the corporate entities will have to amend their corporate records to properly reflect who are shareholders of which entity, who are the properly elected directors and officers, and what assets each is administering on behalf of the entity. They will have to determine among them and the Trusts, how the Corporate Closing will take place, and then place the proceedings before the Judge. They have left it in limbo for some years now that they are added as Respondents. They, not the Court, will have to correct the deficiencies. The Court’s task will be to determine the outcome as to who are the beneficiaries of the money held in trust that remains in place.
[ 38 ] In my view, it makes sense to combine all of these aspects into one claim. It would be a waste of the Court’s resources and time, with a duplication of evidence taking place in 3 actions if the new parties were not added as Respondents and if the amendments to the Application were not allowed. I am aware that Karoly says that the former Wife has started a separate civil action against some of them, which is a duplication. The parties in that action can choose how to deal with it, in light of my Order to add parties to the family law matter.
[ 39 ] Both Karoly and Linett had, at one point, control of all the corporations, directly or indirectly, which gives rise to the oppression claim by the former Wife. In my view, adding the parties is more efficient and productive than having separate pleadings and discoveries in three separate areas of the Court. See: Gilmour v. Gilmour, 2009 CarswellOnt 564, 68 R.F.L. (6 th ) 417 (S.C.J.), where the Court points out in para. 7 that by adding the corporate entities, they would be directly bound by the Court Order made in the family proceeding.
[ 40 ] Rule 11(3) says that on Motion, the Court shall give permission to a party to amend an application, answer or reply, unless the amendment could disadvantage another party in a way for which costs or an adjournment could not compensate. I do not agree with the former Husband that such amendments would profoundly disadvantage either him or any of the now added parties as Respondents. He admits that the money is still there to be dealt with. The former Wife obviously does not trust him to deal with whatever he gets if it is only a matter of #606 doing the Corporate Closing. If that were the case, it would have taken place long ago when the building, itself, was sold. This, in my view, is not a vexatious proceeding, as the Court found in Lang Michener Lash Johnston v. Fabian , 1987 CarswellOnt 378 (O.S.C.).
[ 41 ] While it may be unusual to mix a family law matter with an oppression remedy matter, as noted in Derochie v. Derochie , 2003 CarswellAlt 924 (A.Q.B.), in my view to combine all of these issues in one proceeding makes good common sense. The players are all the same, with a corporate veil being hung over #606. The former Husband and Karoly are still the major players in it as well. Nor, is this a true commercial case where active companies are involved and other persons or entities are shareholders. See: Naneff v. Con-Crete Holdings Ltd. , 1995 CarswellOnt 1207 (C.A.).
The Limitation issue
[ 42 ] The limitation issue was raised by #606, which takes the position that it is too late for the former Wife to add it and Karoly as Respondents in the proceeding. It says that the limitation period in an oppression claim begins two years after the day on which the claim for oppression was discovered. An excellent analysis of this limitation is set out in Fracassi v. Cascioli, 2011 ONSC 178 () , 2011 CarswellOnt 3951 (S.C.J.) beginning in paras. 269 to 274. It is a strict limitation period.
[ 43 ] With respect to the former Wife’s position, the submissions by #606 and Karoly make it clear that the former Wife is a shareholder of that company, and at one point was a director. She tried, unsuccessfully for years, to get the corporate issues dealt with but the company, itself, would not move ahead. Surely, #606 had an obligation to tidy-up and correct its own corporate records or move before the Court to determine who were the shareholders. On the evidence and submissions before me, it did not do this.
[ 44 ] The parties’ Separation Agreement is dated November 21, 2003. It defines The Linett Family Trust in the Agreement. That issue has been long outstanding. It is not affected by the Limitations Act, 2002 . Several paragraphs of the Agreement speak about the Trust. In para. 15, under the heading “SCHEDULE AND MECHANISM OF PAYMENTS, subparagraph specifically refers to #606 as follows with respect to a $300,000 payment to come out of the Trust to the former Husband. It reads, in part:
The payment will be structured to ensure that any payments made by the husband are credited to the husband’s debt to 606314 Ontario Ltd. and not that of Robert Karoly. It is the intention of the parties that each of them will receive one-half of the said monies paid to 606314 Ontario Limited. The parties may incorporate holding companies in order to receive this money in the most tax effective manner available.
[ 45 ] All attempts by the former Wife to negotiate with #606 over the years did not work and it was aware that the former Wife was not giving up her attempts to get the money distributed and money put back into the company for the unpaid rent and interest owed to it before the property was sold.
[ 46 ] In addition, subparagraph 15(6) again mentions the Trust and the sale of the 101 Richmond Street property and any company that owns or operates it. In her Affidavit sworn December 8, 2011, the former Wife says that the former Husband wants her to give a global release, over and above what she gave in the Agreement, which would include releasing Karoly and #606, since Karoly is the Trustee of the Trust, and an officer of #606. To this Affidavit, the form Wife attaches as an Exhibit, a letter dated November 4, 2011 from Timothy J. Hill of Aird & Berlis LLP, which states:
I wish to confirm that our firm will agree to make available the documents sought in your motion, if Marc Linett and his counsel consent, of if you obtain a court order so directing.
In my view, this was a turning point for the former Wife, who then realized that no co-operation would be forthcoming from any of the proposed Respondents I have now added as parties. That date is within the Limitations Act, 2002 , limit and she then went ahead and made her oppression claim and Amended her Claim and moved to add the parties as Respondents. If I am wrong in this regard, the oppression was on-going from the time the property was sold in 2005 and #606 has been part of the former Wife’s position. In addition, #606’s counsel says she was a director of the corporation from 2003 to 2007 so she attempted to have the Closing take place without success. Mr. Justice Perell in the Celestica case has called circumstances such as this “special circumstances”, which extends limitation periods when the interests of justice require. In my view, this scenario is one of those circumstances.
[ 47 ] In addition, there is no limitation on adding Karoly as a Respondent, in his capacity as a Trustee of the Trust, since the administration was on-going, and having asked for an accounting in the part, when none was forthcoming , the former Wife also moved to have him removed as a Trustee of the Trust, in the Amended Application.
[ 48 ] The former Wife’s counsel has pointed to the fact that in her Draft Amended Application, paragraphs 6, 7, 8, 9, 19, 25, 26, 27, 28, 29, 30, 32, 33, 35, 39, were all in the original Claim. All is not new.
Timetable
[ 49 ] The parties are aware, that given the Trial date fixed for March 20, 2013, a strict timetable must be followed by them. The added Responding parties are parties added by Court Order under Rule 7(5) and the Court may direct service on them. Karoly may be served personally with the Amended Application on behalf of The Linett Family Trust, if he is a Trustee, on behalf of himself personally, on behalf of #606 if he is the president or other officer of the corporation, and on behalf of the other 2 corporations, which are subsidiaries of #606. In the alternative, if Karoly prefers, his counsel and #606’s counsel may accept service on behalf of each of their added parties.
[ 50 ] Once served with the Amended Application, the added Respondents shall serve and file an Answer within 14 days of service as provided under Rule 10(4). The parties shall agree on a workable timetable within 10 days of this Order. They may send me their timetable as consented to by the parties or, if they cannot reach a consensus by that date, they may send the variations to me and I will set the timetable. The Trial Date should not be adjourned. Some questioning has taken place. There are many Affidavits already filed. Further Questioning can take place, if necessary, and a new Settlement Conference shall be set, followed by a further Trial Management Conference.
Costs
[ 51 ] If the parties cannot otherwise agree on Costs, they may send me brief written submissions within 30 days of the date of this Order, no longer than 3 pages plus time dockets and case law. Since the Applicant was successful on the Motion, she shall serve her Bill of Costs on the added Responding parties and they shall have 10 days thereafter to respond, and the Applicant 5 days to Reply, if any.
Greer J.
Released: December 5, 2012
COURT FILE NO.: 07-FA-015184FIS
DATE: 20121205
ONTARIO SUPERIOR COURT OF JUSTICE FAMILY LAW
BETWEEN:
JOYCE IVY LINETT, Applicant – and – MARC HARRY LINETT, Respondent
ENDORSEMENT
Greer J.
Released: December 5, 2012