SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-441606

DATE: 20130227

RE: The Estate of Allen Eisen by its representative Ellen Eisen, Plaintiff

– AND –

Union Securities Ltd. and Aaron Hock, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL:
Jeffrey W. Kramer, for the Plaintiff (Responding party)

Christopher H. Freeman, for the Defendants (Moving party)

HEARD: February 26, 2013

ENDORSEMENT

[1] The Defendants bring a motion for summary judgment seeking to dismiss the within action on the grounds that there is no genuine issue requiring a trial. Specifically, the Defendants contend that in the action the Plaintiff advances a claim for compensation for property to which the Plaintiff has no legal entitlement.

[2] Allen Eisen was an investment advisor employed by Union Securities Ltd. (“Union”) at the time of his death on January 4, 2010. He had worked at Union since April 8, 2009, when he moved from his prior place of employment at Research Capital Corporation.

[3] Eisen’s terms of employment at Union were contained in an employment offer letter dated April 8, 2009. That letter was accepted by Eisen, forming a contract of employment with Union. The Union letter provided for a “transition payment” at the outset of his employment, transition fees for clients being brought over from Research Capital Corporation, commission splits, provision of an assistant, coverage of marketing expenses, and other matters. Most importantly, the employment letter from Union stated that, “[a]ll accounts opened by you will be owned by you and may be sold within the company at the time of your choosing, subject to correct policies and procedures.”

[4] The April 8, 2009 employment letter was then supplemented by a letter dated May 26, 2009 setting out further terms of Eisen’s employment with Union. Among other things, the May 26th letter provided that Eisen would earn commissions in respect of his sales of securities while at Union. Allen also obtained an agreement from Union that he could employ his son, Lorn Eisen, as his assistant. Lorn was an aspiring investment advisor who had yet to pass the requisite examinations for his formal entrance to this licensed profession.

[5] Upon Eisen’s death, Union had a regulatory obligation to ensure proper supervision of Eisen’s client accounts. It assigned this task to the Defendant Aaron Hock, who is a licensed investment advisor, as required by the relevant regulations. Hock also took on Lorn Eisen as his assistant for these accounts. Union confirmed that if Lorn became qualified as an investment adviser, the Eisen accounts would be transferred to him for supervision.

[6] Lorn never became licensed as an investment advisor and after a number of months left his employment at Union. Hock has also now left Union, taking one of the Eisen clients with him to his new brokerage firm. The balance of the Eisen portfolio remained with Union. The Defendants contend that Hock made very little by way of commissions on the Eisen accounts, and that the salary that Lorn received for the months that he continued working at Union far outpaced the income generated by the Eisen accounts. As Union itself has now been sold to new owners, it is unclear what has become of the Eisen accounts.

[7] The Plaintiff has asked the Defendants whether, on the sale of the business, the owners of Union received compensation for the Eisen book of business, or if the sale price for Union put a specific value on the Eisen accounts. That inquiry has not been answered. Accordingly, the Plaintiff argues that while the Defendants baldly assert that the Eisen book of business had little value, Union has refused to disclose any information that would allow them to assess or verify that value.

[8] The Defendants respond by submitting that the Plaintiff’s request for information is out of sequence. First, the Defendants contend, the Plaintiff must establish that it has a legal right to the Eisen accounts following Allen Eisen’s death, and only if that can be established does the question of disclosure regarding those accounts come into play.

[9] In support of its argument that the Plaintiff retains no interest in the Eisen book of business, the Defendants point to a document produced by the Plaintiff which appears to be a generic employee policy document of Union’s and which sets out some general policy matters for Union employees. This document was produced by the Plaintiff after cross-examinations had been complete – apparently, Allen Eisen’s widow found it quite recently among Eisen’s belongings. Given its late disclosure, the Defendants at first objected to the admissibility of this Union policy document. Upon closer inspection, however, the Defendants realized that it could be helpful to their case and they now rely on this policy document to make their point about ownership of the accounts.

[10] In my view, the Union policy document is admissible despite the fact that it surfaced unusually late in the sequence of the motion. It is a Union document produced in the litigation by the Plaintiff, so neither party should be surprised by its existence or its contents. Any concern that it surfaced after cross-examinations were complete goes to the weight to be attributed to this document, but does not counter its admissibility on this motion.

[11] Among other things, the Union policy document states that upon death of an investment advisor, all accounts worked by that advisor belong to Union. Counsel for the Defendants argues that this indicates that after Eisen’s death Union is the sole owner of the Eisen accounts and does not owe the Eisen estate any reporting or disclosure regarding the profitability of those accounts. It is the Defendant’s position that Eisen had the right during his lifetime to sell his book of business to another adviser within Union, but once he died his estate lost that property right.

[12] Counsel for the Defendants submits that unfair as this may seem for the estate of an investment advisor, it is the consequence of the regulatory policy requiring a licensed securities dealer to deal with the accounts. Union says that although it was obliged to appoint an investment advisor to oversee the Eisen accounts, it was not obliged to purchase the accounts or to compensate the estate for the value of the accounts as they were already owned by Union.

[13] For his part, counsel for the Plaintiff points out that ordinarily an asset owned by an individual is, by operation of law, owned by his estate upon his death. Counsel for the Plaintiff submits that while a licensed advisor may be required to supervise trades in the accounts of a deceased advisor, ownership should, in the absence of any agreement to the contrary, pass directly to the estate.

[14] Counsel for the Plaintiff also points out that while the Union policy document states that an investment advisor’s accounts are owned by Union after the advisor’s death, it also states that an investment advisor’s accounts are owned by Union while the advisor is still alive and working at the firm. We know from Eisen’s employment letter, however, that this was not the case with Eisen; his terms of employment specifically provided that he personally owned his accounts. Counsel for the Plaintiff submits that if ownership rights during Eisen’s lifetime differed from Union’s general policy for its employees, it stands to reason that ownership rights after Eisen’s death also differ from what is described in Union’s general policy document.

[15] It is not clear whether the general Union policy document applied to Eisen or not. The document has been produced late in the day, without any affidavit evidence or testimony explaining how it came into the hands of the Eisen estate. Moreover, there has been no evidence from anyone at Union explaining the genesis of this policy document and whether it was distributed to all employees or given to Eisen in particular. Furthermore, there is no evidence in the record as to whether Eisen’s arrangement was special, or as to how many Union investment advisors had particular employment contracts that, like Eisen’s, differed from the general policy on ownership of accounts.

[16] Since there is no evidence in the record about the status of the Union policy document and how it fits with Eisen’s employment letter, it is impossible at this stage to know what to make of the account ownership question. Specifically, without more evidence of the employment situation throughout Union it cannot be determined what the difference between the general policy and the Eisen contract regarding ownership during the advisor’s lifetime might mean for the question of ownership after his death.

[17] In short, the question of ownership of Eisen’s book of business after his death cannot be determined at this stage. As a matter of legal logic, neither side has an argument that trumps the other. The Defendant is right that an estate is not licensed and by regulation cannot deal with the investment accounts, and, consequently, it makes no sense for trading accounts to belong to the estate of a deceased advisor. On the other hand, the Plaintiff is right that ownership can be considered separate from trading authority, and, consequently, it makes no sense for accounts that belonged to an investment advisor the minute before his death to cease being property of his estate once he has died.

[18] Since legal logic alone cannot answer the question of ownership, more evidence is needed as to whether or not the general Union policy regarding ownership applied to Eisen. The policy document that has been produced points both ways in that it answers the question generally at the same time as it suggests that the general answer might not apply here. More evidence on point is clearly needed before the question of ownership can be determined.

[1] Accordingly, I do not have a full appreciation of the evidence required to make dispositive findings. Combined Air Mechanical Services v. Flesch (2011), 2011 ONCA 764, 108 OR (3d) 1, at paras 73-75 (Ont CA). Under Rule 20, the onus is on the moving party to show that there is no genuine issue requiring a trial. Pizza Pizza Ltd. v. Gillespie (1990), 1990 4023 (ON SC), 75 OR (2d) 225 (Ont Gen Div). In the present circumstances, this onus has not been met by the Defendants.

[19] Complete discoveries and a trial are needed here in order to determine the threshold issue of ownership of the Eisen accounts and, if relevant after that determination, the value of those accounts. The Defendants’ motion for summary judgment is therefore dismissed.

[20] The Plaintiff has provided a Costs Outline requesting costs on a partial indemnity basis in the amount of $12,198.92, plus disbursements and HST in the amount of $2,671.57. In my view, that is a very reasonable request. The Defendants shall pay costs to the Plaintiff in the total amount of $14,870.49, inclusive of disbursements and HST.

Morgan J.

Date: February 27, 2013