Court File and Parties

COURT FILE NO.: 26032/12

DATE: 2013-09-30

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MARIA STRUIK

Plaintiff

– and –

DIXIE LEE FOOD SYSTEMS LTD., DIXIE LEE OF CANADA INC., DIXIE LEE CAPITAL CORPORATION and JOSEPH MURANO

Defendants

Counsel:

Mr. Reynolds, Counsel for the Applicant

Ms. Dhillon, Counsel for the Respondent

HEARD: August 19, 2013

REASONS ON SUMMARY JUDGMENT MOTION

varpio, j.

OVERVIEW

[1] The Dixie Lee group of companies (“Dixie Lee”) franchises fast food restaurants that sell chicken. Mrs. Maria Struik and her late husband were involved in the Northern Ontario operations of Dixie Lee for several years. By 2007, Mr. Joseph Murano had become the operating mind of Dixie Lee and relations with the Struiks soured. Litigation ensued between Dixie Lee and Mrs. Struik. In 2011, the litigation was settled via Minutes of Settlement, some of which were dated April 7, 2011 (the “Minutes”). The Minutes stated that Mrs. Struik was to receive a stream of payments from Dixie Lee Systems Ltd. (“Systems”) in return for her exit from the business. The Minutes also stated that, if Systems failed to make payments to Mrs. Struik or sold “any part of the business” to a related company, Mrs. Struik was entitled to certain remedies including a guarantee that the related recipient company would continue making the aforementioned payments. Mrs. Struik registered her PPSA interest after signing the Minutes.

[2] In 2012, Systems ceased making payments to Mrs. Struik and also transferred franchise agreements from Systems to a related company, Dixie Lee Capital Corporation (“Capital”).

[3] As a result of these actions, Mrs. Struik sought the ex parte remedies described in the Minutes which resulted in a December 11, 2012 Order directing Systems to make payments to Mrs. Struik.

[4] Statements of Claim and Defence have been filed and the plaintiff now seeks partial summary judgment stating that Capital is liable for the payment stream described by the Minutes. Mrs. Struik also seeks a declaration that Mr. Murano’s PPSA registration – filed in 2009 - has no priority over her interests. The defendants, for their part, seek an Order both dismissing the plaintiff’s motion and setting aside the December 11, 2012 Order.

[5] Upon review of the materials before me, I am satisfied that I am in a position to have a full appreciation of the case. The Minutes are unambiguous. Upon transfer of the franchise agreements in 2012, the recipient corporation – Capital – is to become a guarantor for System’s payments to Mrs. Struik. Accordingly, I am satisfied that Capital is liable – along with Systems - for the payment stream as described in the Minutes.

[6] I am also satisfied that, since Mr. Murano did not comply with s. 48 of the PPSA, his security does not take precedence over Mrs. Struik’s security with respect to the two 2012 transfers in evidence. I decline, however, to make a broader finding regarding other possible transfers since I have insufficient evidence before me in this regard.

[7] Finally, I dismiss the Defendants’ cross-motion since the language of the Minutes clearly supports Justice Scott’s making of the December 11, 2012 Order.

FACTS

[8] The plaintiff, along with her late husband John Struik (who passed away in 2008), were System’s Northern Ontario Franchisees. In January 2006, a numbered company acquired the shares of both Systems and Dixie Lee of Canada, Inc. (“Dixie Canada”). Mr. John Murano was a shareholder of the numbered company. Although Mr. Murano’s affidavit does not explicitly state that he was the controlling mind of the aforementioned numbered company – and thus the controlling mind of Dixie Lee – his affidavit nonetheless states that, “in or about June 2007, I had decided that I wanted to take the Dixie Lee company in a different direction. Namely, I had a vision to make the company a public entity… In order to move in this direction one of my first steps was to assign the income and the franchise agreement under Dixie Lee Food to Dixie Lee Capital Corporation… In both mine and my counsel’s opinion this was [a] better option of corporate organization for me to achieve my goal of going public… In June 2007 when the transfer occurred, I immediately proceeded to inform all franchisees…”

[9] Mr. Murano states that between June 2007 and April 2009, he invested considerable personal capital into Systems. On April 28, 2009 Mr. Murano registered a PPSA security as against Systems in the amount of $392,536. The General Collateral Description of the PPSA registration states that Mr. Murano has security as against “[a]ll undertaking, property and assets of the debtors, now owned or hereafter acquired and any proceeds from the sale or other disposition thereof, all accounts, inventory, equipment”.

[10] The relationship between the Struiks and Mr. Murano was not a good one and, ultimately, litigation commenced. Minutes of Settlement were entered into on May 31, 2010 and April 7, 2011 (the latter being previously defined as the “Minutes”). The Minutes state that Mrs. Struik was to sell her interest as Dixie Lee’s Area Franchisee to Systems for $1,300,000 to be paid via monthly installment. Mrs. Struik’s affidavit states that “great pains were taken in the drafting of the Minutes of Settlement ... to provide me with a wide array of remedies if Dixie Lee stopped paying”. Paragraphs 4 through 6 of the Minutes state as follows:

(4) In the event that Dixie Lee Food Systems Ltd. fails to make a payment called for under paragraph (2) above, or para. 1 of the Minutes of Settlement dated May 31, 2010, and fails to rectify that default within 21 days of written notice of default by Mrs. Struik, then Mrs. Struik shall be entitled in her discretion to:

(a) immediate assignment and transfer of all Franchise Agreements within the Area including one hundred percent (100%) of all amounts payable under the Franchise Agreements, specifically, but not restricted to, one hundred percent (100%) of the royalties. Thenceforth, Mrs. Struik shall be entitled in all respects to function as Franchisor in regard to the Area, including the right to grant renewals and extensions of Franchises, and the right to issue new Franchises including the right to 100% of all royalties arising therefrom. Dixie Lee Food Systems Ltd. further agrees that, in the event that it fails to execute an assignment and transfer as set out in this paragraph within 10 days of being presented with documents effecting the assignment, Mrs. Struik shall be entitled to apply without notice to Dixie Lee Food Systems Ltd. or Dixie Lee of Canada Inc. to a court of competent jurisdiction for an order vesting in her or as she may direct the rights to be assigned to her; or

(b) Payment forthwith of the entire amount remaining to be paid of the purchase price and the entire amount then remaining to be paid under para. 1 of the Minutes, including accumulated interest if any.

(5) In the event that Dixie Lee Food Systems Ltd. fails to make a payment called for by this settlement or para. 1 of the Minutes of May 31, 2010, and fails to remedy that breach with the time limited as set out above, then, in addition to and without derogating from any other rights she may have, Mrs. Struik shall be entitled to apply for and obtain, without notice to Dixie Lee Food Systems Ltd. or Dixie Lee of Canada Inc., an injunction requiring Dixie Lee Food Systems Ltd. to make the payments.

(6) The purchase price shall be secured by:

(1) a purchase money security interest in Struik’s favour over the assets transferred in form reasonably satisfactory to counsel for Struik;

(2) a guarantee by Dixie Lee of Canada Inc. of the debt in form reasonably satisfactory to counsel for Struik. In the event that Dixie Lee Food Systems Ltd. or Dixie Lee of Canada Inc. transfer any part of the business to a related entity, that entity will be subject to the guarantee obligation.

[emphasis added]

[11] Subsequent to signing the Minutes, Mrs. Struik registered her interest in Systems with the Personal Property Security Registration System, securing:

(a) “Right of first refusal in respect of the Canadian operations of the debtor and the interest in the debtor corporation of the current principal of the debtor, Mr. Murano”; and

(b) “All rights of the debtor as franchisor of the Dixie Lee Food Systems franchise system in respect of the franchises located in the Northern Ontario territory as defined in the Area Franchise Agreement between the debtor and the secured party dated January 19, 1989, as amended by the amending agreement dated December 16, 2003, the Minutes of Settlement between the debtor and the secured party dated May 31, 2010 and the Minutes of Settlement between the debtor and the secured party dated April 7, 2011.”

[12] On October 15, 2012, Systems missed a payment and, after Mrs. Struik engaged the relevant default provisions of the Minutes, Dixie Lee indicated to Mrs. Struik that Systems would not be making future payments. In his affidavit, Mr. Murano indicates that Systems ceased paying Mrs. Struik because she breached a non-competition clause contained in the Minutes. Mr. Murano filed affidavit material with an email chain marked “without Prejudice” in order to substantiate this claim. Given the “without Prejudice” affixation, I place no weight on said email chain beyond recognizing that Mr. Murano is taking said position. The defendants did not argue the effect of such an alleged breach on the instant motions.

[13] As a result of the non-payments, Mrs. Struik had counsel obtain the following ex parte Orders:

(1) An Order dated December 11, 2012 directing Systems to continue payments to Mrs. Struik (as per paragraph 5 of the Minutes); and

(2) An Order dated January 22, 2013 vesting Dixie Lee’s Northern Ontario franchising rights into a numbered company controlled by Mrs. Struik (as per paragraph 4(a) of the Minutes).

[14] The instant Statements of Claim and Defence, as well as the motions before the Courts, were all filed.

[15] In her motion materials, Mrs. Struik filed two completed and signed documents entitled “Transfer Agreement” (the “Transfer Agreements”). The Transfer Agreements state:

Whereas by a Franchise Agreement made on [relevant date for each transaction was inserted here] between Dixie Lee Food Systems Ltd. (Franchisor) and [the document names the relevant Franchisee] (Franchisee) the Transferor does hereby transfer said Franchise Agreement into the name of Dixie Lee Capital Corporation as noted herein.

The provision for this transfer is set forth in the said Franchise Agreement under Article 12.01 Transfer by the Franchisor. All the conditions, provisions, trademarks and obligations as set forth in the Franchise Agreement remain as written, except that the Franchise Agreement has been transferred to Dixie Lee Capital Corporation having an address of…

Both Transfer Agreements were dated January 16, 2012 and were signed by Mr. Murano on behalf of both Systems and Capital.

POSITION OF THE PLAINTIFF

[16] The plaintiff takes the following positions with respect to the motion and cross-motion:

1. Capital and Systems are related entities as evidenced by their shared operating minds, sources of revenue addresses and the like.

2. The transfer of two franchise agreements in January of 2012 engages paragraph 6 of the Minutes since a franchise agreement is part of Systems’ business. As such, Capital is liable for payments to Mrs. Struik.

3. Mr. Murano’s PPSA registration has no priority over Mrs. Struik’s registered claim. Mrs. Struik’s logic is as follows:

(a) If all franchise agreements were transferred in 2007 as Mr. Murano states, then Mr. Murano’s 2009 registration would not apply to same since the franchise agreements were not the property of Systems at the time of registration; and

(b) Alternatively, given that the Transfer Agreements purport to transfer franchise agreements on January 16, 2012, Mr. Murano’s PPSA registration has no priority over Mrs. Struik’s interests since Mr. Murano failed to comply with s.48 of the PPSA by failing to re-register his security.

Thus, regardless of when the Franchise Agreements were actually transferred, Mrs. Struik submits that I must accept that Mr. Murano’s registration does not have a priority interest over Mrs. Struik’s interests.

4. With respect to the defendants’ cross-motion, the plaintiff states that a plain reading of the Minutes entitles the plaintiff, upon default, to the remedies described in paragraph 5 as well as the plaintiff’s choice of remedy described in paragraphs 4(a) and 4(b). As such, the ex parte Orders granted by the Court were properly granted since they were contemplated by paragraphs 4(a) and 5 of the Minutes. Procedurally, the plaintiff argues that the defendants did not move forthwith to have the matter heard and have thus run afoul of Rule 37.

POSITION OF THE DEFENDANTS

[17] The Defendants take the following positions with respect to the motion and cross-motion:

1. Capital and Systems are not related companies, although counsel advanced no grounds for this position. As such, the guarantee clause in paragraph 6 of the Minutes is not triggered;

2. The Transfer Agreements, despite their language, are not in fact current agreements, but are instead evidence of agreements made in 2007. It is important to note that while Mr. Murano claims to have effectuated all transfers in 2007, he does not address the Transfer Agreements in his affidavit. Mr. Murano’s counsel indicated in his submissions that documents not filed with the Court support the position that the Transfer Agreements are simply evidence of a prior transfer and that the language in the Transfer Agreements is erroneous. When I indicated to counsel that she should consider asking for an adjournment to furnish the Court with these documents, counsel indicated that counsel’s oral submission were sufficient to demonstrate that there was a triable issue and, as such, granting summary judgment would be inappropriate.

3. With respect to the Plaintiff’s PPSA argument, the defendants state that the plaintiff is out of time. They claim that the two-year limitation period for bringing said relief commenced in 2007 and has thus expired.

4. With respect to the cross-motion, the defendants state that the existence of the multiple remedies claimed by the plaintiff is not commercially reasonable and that the appropriate interpretation of paragraphs 4 and 5 is disjunctive. Namely, according to their factum, the defendants state that the plaintiff is entitled to the relief in paragraph 4(a) or 4(b) and that the ex parte Orders in fact grant relief under both sub- paragraphs.

THE LAW

Summary Judgment

[18] Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 governs summary judgment motions. The relevant portions state:

RULE 20 SUMMARY JUDGMENT

WHERE AVAILABLE

To Plaintiff

20.01 (1) A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. R.R.O. 1990, Reg. 194, r. 20.01 (1)...

EVIDENCE ON MOTION

20.02 (1) An affidavit for use on a motion for summary judgment may be made on information and belief as provided in subrule 39.01 (4), but, on the hearing of the motion, the court may, if appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts. O. Reg. 438/08, s. 12.

(2) In response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial. O. Reg. 438/08, s. 12.

DISPOSITION OF MOTION

General

20.04 (2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issues requiring a trial with respect to a claim or defence; ...

Powers

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence. O. Reg. 438/08, s. 13 (3).

[19] The leading case interpreting Rule 20 is Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, [2011] O.J. No. 5431 (Ont. C.A.). In the oft-quoted passage found in paragraphs 50 to 56, the Ontario Court of Appeal enunciated what is now known as the “full appreciation” test:

50 We find that the passages set out above from Housen, at paras. 14 and 18, such as "total familiarity with the evidence", "extensive exposure to the evidence", and "familiarity with the case as a whole", provide guidance as to when it is appropriate for the motion judge to exercise the powers in rule 20.04(2.1). In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?

51 We think this "full appreciation test" provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.

52 In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Similarly, the full appreciation test may be met in cases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented to the requisite degree at the motion judge's direction by hearing oral evidence on discrete issues.

53 We wish to emphasize the very important distinction between "full appreciation" in the sense we intend here, and achieving familiarity with the total body of evidence in the motion record. Simply being knowledgeable about the entire content of the motion record is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. The full appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of the evidence that has been put before them.

54 The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers.

55 Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative, and to experience the fact-finding process first-hand. Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record - as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) - the judge cannot be "satisfied" that the issues are appropriately resolved on a motion for summary judgment.

56 By adopting the full appreciation test, we continue to recognize the established principles regarding the evidentiary obligations on a summary judgment motion. The Supreme Court of Canada addressed this point in Lameman, at para. 11, where the court cited Sharpe J.'s reasons in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), at p. 434, in support of the proposition that "[e]ach side must 'put its best foot forward' with respect to the existence or non-existence of material issues to be tried." This obligation continues to apply under the amended Rule 20. On a motion for summary judgment, a party is not "entitled to sit back and rely on the possibility that more favourable facts may develop at trial": Transamerica, at p. 434.

[emphasis added]

[20] Combined Air has been interpreted by the Ontario Superior Court of Justice on several occasions. Recently, in Bernier v. Nygard International Partnership, [2013] O.J. No. 3091, Justice E.M. Morgan granted summary judgment in an employment law case because he found that there was no evidence to support a defence that the parties changed a common law term in an employment contract. Upon examining the factual record, Justice Morgan wrote:

25 Plaintiff's counsel is correct that an adverse inference could be drawn from Mr. Bennett's failure to provide any evidence on the central factual controversy in the action. The Defendant's problem is, however, even more severe than that, since drawing an adverse inference might suggest that there is even a credibility issue to be resolved. There is, however, no real issue here at all.

26 There is absolutely no evidence from the Defendant that the February 2007 letter embodied an agreement or was ever delivered to the Plaintiff. In his first affidavit, Mr. Rubinfeld simply says that, "[i]t is my understanding and belief that the Amendment Agreement was delivered to the plaintiff's attention on or shortly after February 12, 2007." He provides no source for this crucial piece of information. Then, as if in recognition of this weakness, Mr. Rubinfeld provided a second affidavit in which he tries to clarify the situation by speculating that the Plaintiff must have been given the letter because it was the Defendant's standard practice to give employees this type of letter.

27 In other words, not only does Mr. Rubinfeld have no direct knowledge of the facts to which he deposes, but he does not even testify that Mr. Bennett, the one person other than the Plaintiff who could have direct knowledge, informed him of the facts. There is nothing but uninformed speculation on Mr. Rubinfeld's part.

28 What the court is presented with in this motion is not a credibility contest. There is no actual evidence -- either direct or indirect -- on the Defendant's side which I would have to weigh against the direct evidence on the Plaintiff's side.

29 The Plaintiff has provided sworn evidence that there was no agreement with Mr. Bennett and that she was never given an amending letter by him in February 2007. Mr. Bennett has provided nothing. Under these circumstances, I have no trouble achieving the type of "full appreciation of the evidence and issues that is required to make dispositive findings", as stipulated by the Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431, at para. 50.

30 The Plaintiff's evidence certainly trumps the Defendant's lack of evidence. I find as a fact that there was no agreement amending the notice provision of the Plaintiff's employment agreement. The common law notice requirement therefore prevails.

[emphasis added]

[21] Thus, it is clear that, in the context of a summary judgment motion, a party’s silence in the face of evidence advanced by an opposing party can be fatal to the silent part’s position.

Limitations Act

[22] Section 4 of the Limitations Act, S.O. 2002, c. 24, Sch. B. states that there is a basic two- year limitation for commencing a lawsuit starting from the day on which the claim was discovered. There are, however, exceptions to this general rule. Section 16 of the Limitations Act sets out many of these exceptions:

No limitation period

16. (1) There is no limitation period in respect of,

(a) a proceeding for a declaration if no consequential relief is sought;

(b) a proceeding to enforce an order of a court, or any other order that may be enforced in the same way as an order of a court;

(c) a proceeding to enforce an award in an arbitration to which the Arbitration Act, 1991 applies;

(d) a proceeding under section 8 or 11.2 of the Civil Remedies Act, 2001;

(e) a proceeding by a debtor in possession of collateral to redeem it;

(f) a proceeding by a creditor in possession of collateral to realize on it ...

[23] Also, the Courts have interpreted the Limitations Act to state that the limitations periods do not apply to the defences like equitable set off: Canada Trustco Mortgage Co. v. Pierce Estate; Pierce v. Canada Trustco Mortgage Co., 2005 CanLII 15706 (ON CA), [2005] O.J. No 1886 at paras. 37 to 47 (Ont. C.A.).

The PPSA

[24] Sections 25 and 48 of the Personal Property Security Act, R.S.O. 1990, Ch. P. 10, state as follows:

Perfecting as to proceeds

25. (1) Where collateral gives rise to proceeds, the security interest therein,

(a) continues as to the collateral, unless the secured party expressly or impliedly authorized the dealing with the collateral free of the security interest; and

(b) extends to the proceeds. R.S.O. 1990, c. P.10, s. 25 (1); 2000, c. 26, Sched. B, s. 16 (3).

Idem

(2) Where the security interest was perfected by registration when the proceeds arose, the security interest in the proceeds remains continuously perfected so long as the registration remains effective or, where the security interest is perfected with respect to the proceeds by any other method permitted under this Act, for so long as the conditions of such perfection are satisfied. R.S.O. 1990, c. P.10, s. 25 (2).

Idem

(3) A security interest in proceeds is a continuously perfected security interest if the interest in the collateral was perfected when the proceeds arose. R.S.O. 1990, c. P.10, s. 25 (3).

Transfer of collateral

48. (1) Where a security interest is perfected by registration and the debtor, with the prior consent of the secured party, transfers the debtor’s interest in all or part of the collateral, the security interest in the collateral transferred becomes unperfected fifteen days after the transfer is made unless the secured party registers a financing change statement within such fifteen days.

Idem

(2) Where a security interest is perfected by registration and the debtor, without the prior consent of the secured party, transfers the debtor’s interest in all or part of the collateral, the security interest in the collateral transferred becomes unperfected thirty days after the later of,

(a) the transfer, if the secured party had prior knowledge of the transfer and if the secured party had, at the time of the transfer, the information required to register a financing change statement; and

(b) the day the secured party learns the information required to register a financing change statement,

unless the secured party registers a financing change statement or takes possession of the collateral within such thirty days.

Financing change statement

(5) A security interest that becomes unperfected under subsection (1), (2) or (3) may be perfected again by registering a financing change statement at any time during the remainder of the unexpired registration period of the financing statement or any renewal thereof.

Varying Motions

[25] A party wishing to vary an Order can, pursuant to Rule 37, come to Court and seek relief:

Motion to Set Aside or Vary

37.14 (1) A party or other person who,

(a) is affected by an order obtained on motion without notice;

(b) fails to appear on a motion through accident, mistake or insufficient notice; or

(c) is affected by an order of a registrar,

may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion. R.R.O. 1990, Reg. 194, r. 37.14 (1); O. Reg. 132/04, s. 9.

(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just. R.R.O. 1990, Reg. 194, r. 37.14 (2)…

Order Made by Judge

(4) A motion under subrule (1) or any other rule to set aside, vary or amend an order of a judge may be made,

(a) to the judge who made it, at any place; or

(b) to any other judge, at a place determined in accordance with rule 37.03 (place of hearing of motions). R.R.O. 1990, Reg. 194, r. 37.14 (4).

ANALYSIS

Full Appreciation

[26] Firstly, I am satisfied that I have a full appreciation of the present case and its depth and breadth without need of a trial. This case rests largely upon the interpretation of documents, specifically the Minutes, the Transfer Agreements and Mr. Murano's PPSA security. Combined Air, contemplates such a situation.

[27] Mr. Murano's counsel takes the position that there are other documents in existence that will affect the interpretation of the Transfer Agreements. As indicated earlier, I provided counsel with the opportunity to seek an adjournment to put these allegedly relevant documents before the Court. Instead of asking for such an indulgence and upon discussion with her client, counsel instead repeated her assertion that the defendants’ submissions regarding the existence of said documents ought to be enough to satisfy the Court that a full trial is necessary to determine the issues at hand.

[28] Respectfully, I disagree with that proposition.

[29] As seen above in both Rule 20.02(2) and in Combined Air (adopting Sharpe J.'s position in Transamerica Life), a party defending a summary judgment motion has an obligation to adduce evidence regarding the impugned factual issues. It is not enough for a party to simply state on the date of the motion that "there are other documents out there". The responding party has an obligation to place relevant evidence before the Court so that the Court can determine whether or not it is in a position to have a full appreciation of the issues to be decided.

[30] In this case, the defendants were given ample opportunity to place these allegedly relevant documents before the Court. They sought, and obtained, an adjournment from the original July 11, 2013 hearing date that gave them ample time to gather materials. Beyond that adjournment, I provided the defendants with a further opportunity to place materials before the Court. The defendants chose not to seek an adjournment. As such, I have no hesitation in rejecting the submission that "other documents" not in the Court record should constitute a basis for denying the plaintiff's motion for summary judgment. It is clear to me that the defendants made a tactical decision to put their "best foot forward" in the instant motion and, as such, I accept as a fact that the current contents of the record constitute the defendants' best evidence.

Effect of the Transfer Agreement

[31] The plain language of the Transfer Agreements is such that, rather than being evidence of a prior transfer, they are instead documents that effectuate the immediate transfer of franchise agreements:

Whereas by a Franchise Agreement made on [relevant date for each transaction inserted here] between Dixie Lee Food Systems Ltd. (Franchisor) and [name of relevant Franchisee inserted here] (Franchisee) the Transferor does hereby transfer said Franchise Agreement into the name of Dixie Lee Capital Corporation as noted herein.

[emphasis added]

[32] The wording "does hereby transfer said Franchise Agreement" clearly connotes a current transfer, not a past exchange. No other interpretation of the Transfer Agreements is possible. While Mr. Murano’s affidavit does state that he transferred all franchise agreements in 2007, this bald statement is belied by documents that bear his own signature. Mr. Murano could have addressed this discrepancy in his affidavit. He chose not so to do. I find that Mr. Murano's silence in the face of his own documentary evidence determinative and I thus draw an adverse inference as against the defendants.

[33] I find that the Transfer Agreements were effective January 16, 2012. The Limitations Act is therefore inapplicable.

Related Companies

[34] Counsel for the defendants suggests that Systems and Capital are not related but did not provide me with any basis for this position. I disagree with that assertion.

[35] According to the corporate searches filed with the Court, Systems and Capital are both private companies with similar officers, the same corporate addresses and similar corporate names. The companies share at least some similar revenue streams (i.e. Dixie Lee franchise agreements). Further, in his own affidavit, Mr. Murano makes plain that the decision to transfer franchise agreements between Systems and Capital was within his exclusive purview. Thus, Systems and Capital have the same directing mind. Given the foregoing, I find as a fact that Systems and Capital are related companies as defined by the Minutes.

The Triggering Mechanism - Paragraph 6 of the Minutes

[36] Given the two aforementioned findings, paragraph 6 of the Minutes is engaged. Specifically, on January 16, 2012, Systems transferred part of its business (the franchise agreements) to a related company - Capital. According to the only possible interpretation of the Minutes, Capital is liable for the payments described in both the Minutes and the December 11, 2012 Order. Summary judgment is therefore granted on this ground.

Cross-Motion

[37] The plaintiff raised a procedural argument in its factum regarding the timeliness of the cross-motion and the defendants’ breach of their obligations under Rule 37.14. I will not address this issue at this time since the substance of the defendants’ position is such that any procedural consideration is moot.

[38] The defendants take the position that the December 11, 2012 Order was made in error since the Minutes do not permit the plaintiff to acquire both a vesting order and an Order guaranteeing payment. Respectfully, this position appears to be based upon a misreading of the Minutes. Paragraph 5 of the Minutes makes clear that the remedies listed in that paragraph (i.e. Court ordered payments as per the December 11, 2012 Order) exist regardless of the remedies described in paragraphs 4(a) [i.e. vesting Order of January 22, 2013] and 4(b) [i.e. an immediate payment remedy not pursued by the plaintiff]. No other reading of the Minutes is possible and, as such, both ex parte Orders were properly granted.

[39] Counsel for the defendants also submitted that, as a policy position, Mrs. Struik's ability to access multiple remedies is commercially unreasonable. As such, the defendant's cross-motion seeking to overturn the December 11, 2012 Order of Justice Scott should be granted.

[40] While the existence of multiple contractual remedies may be commercially ill-advised, such remedial powers do not provide sufficient grounds to obviate a settlement reached between sophisticated parties. As evidenced by his affidavit, Mr. Murano is a sophisticated commercial operator capable of managing several franchise agreements, considerable revenue and the potential vicissitudes of the public market. To suggest that Mr. Murano lacked sophistication ignores the contents of his affidavit and the quanta of money being handled by corporations over which he has control.

[41] Mr. Murano, as the operating mind of Dixie Lee, made business decisions when negotiating the Minutes to permit Mrs. Struik multiple remedies in the event of default. A sophisticated party cannot come to Court to alter a valid agreement simply because that party has grown to dislike its terms. Such a policy would do immense harm to the legal system since individuals could not rely upon contracts to bind others. Accordingly, I dismiss the defendants’ position that permitting Mrs. Struik to avail herself of multiple remedies would be commercially unreasonable. Instead, the failure to permit Mrs. Struik to access those multiple remedies would set a dangerous precedent. The cross-motion is therefore dismissed.

PPSA

[42] As indicated above, section 48(1) of the PPSA states that “where a security interest is perfected by registration and the debtor, with the prior consent of the secured party, transfers the debtor’s interest in all or part of the collateral, the security interest in the collateral transferred becomes unperfected fifteen days after the transfer is made unless the secured party registers a financing change statement within such fifteen days” [emphasis added].

[43] Franchise agreements and their collateral form part of Mr. Murano’s security. Since the secured party – Mr. Murano – failed to register a financing change statement within 15 days of the January 16, 2012 transfer, I must determine whether Mr. Murano consented to the transfer of franchise agreements as between Systems and Capital on January 16, 2012.

[44] As indicated by the documentary evidence filed with the Court, Mr. Murano, as Dixie Lee’s operating mind, signed for both Systems and Capital when effectuating the transfers. Shortly after settling nasty litigation, Mr. Murano decided to transfer franchise agreements – and their concomitant revenue streams – from Systems to Capital because he obviously believed that such transfers were in Dixie Lee’s best interests.

[45] Although no documentation was filed with the Court explicitly stating that Mr. Murano, in his personal capacity, consented to the transfer, logic demands that Mr. Murano’s signature on the Transfer Agreements constitutes consent to same. Mr. Murano’s affidavits make clear that he had personal oversight of Dixie Lee. Further, there is no suggestion that anyone other than Mr. Murano had an influence over his decision-making in this regard. Had there been evidence that Mr. Murano was forced to place his corporate duties ahead of his personal obligations in effectuating said transfers, it is possible that Mr. Murano’s signature might not import such personal consent. However, there is no evidence suggesting such a bifurcation of interest. In fact, Mr. Murano’s own evidence suggests that he directed the Dixie Lee companies as his personal property and, as such, if Mr. Murano had chosen not to consent to said transfers for personal reasons, he could easily have withheld his signature. Thus, given his personal direction use of Dixie Lee, I find that Mr. Murano consented to the transfer and, as such, his security interest has no priority over Mrs. Struik’s secured interest.

[46] Regardless of whether Mr. Murano consented to the transfer in his personal capacity, he had prior knowledge of the transfer. As such, if I am wrong regarding the application of s. 48(1) of the PPSA, it is clear that Mr. Murano failed to comply with s. 48(2)(a) of the PPSA and Mrs. Struik’s secured interest in Systems takes priority in any event.

[47] While I find the plaintiff’s logic appealing regarding the alleged 2007 transfers described in Mr. Murano’s affidavit, I decline to make a finding regarding specific transfers not in evidence since I do not have sufficient information before me to make such a ruling.

COSTS

[48] Should either party wish to address the Court with respect to costs, they may do so within 15 days of the date of these reasons in no more than two pages.

Varpio, J.

Released: 2013-09-30

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

MARIA STRUIK

• and -

DIXIE LEE FOOD SYSTEMS LTD., DIXIE LEE OF CANADA INC., DIXIE LEE CAPITAL CORPORATION and JOSEPH MURANO

REASONS ON SUMMARY JUDGMENT MOTION

Varpio, J.

Released: 2013-09-30