ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-449490
DATE: 20130125
BETWEEN:
Eastside Apartments Limited and Gus Michalis
Plaintiffs
– and –
Rachel Loizos, Louis Alexopoulos and Sotos LLP
Defendants
V. William Andreou, for the Plaintiffs
Tanisha G. Tulloch, for the Defendants
HEARD: January 11, 2013
Morgan J.
[1] The Defendants are a law firm (and the partners of that firm), who are sued by the Plaintiffs for solicitors’ negligence and breach of fiduciary duty.
[2] The Defendants seek summary judgment on a number of different grounds:
(a) the action is statute barred and is an abuse of process;
(b) the Statement of Claim does not disclose any personal cause of action belonging to the Plaintiff Gus Michalis;
(c) The Plaintiff Eastside Apartments Limited has not suffered any damages resulting from any act or omission by the Defendants; and
(d) Eastside does not have authority to commence this Action.
[3] Ms. Tulloch, on behalf of the Defendants, submits that the grounds for the motion are both independent and cumulative. A finding against the Plaintiffs on any one of them could serve as a basis for summary judgment and terminate the action (although, strictly speaking, numbers 2, 3, and 4 above would each terminate the action by only one of the two Plaintiffs).
[4] It is certainly the case that if the cause of action is statute barred the entire matter, including the claims by both Plaintiffs against all of the Defendants, must be dismissed. Accordingly, I will address the limitation period first.
[5] The individual Plaintiff, Gus Michalis (“Michalis”) is a 50% shareholder of the corporate Plaintiff, Eastside Apartments Limited (“Eastside”). The other 50% shareholder, David Elkind (“Elkind”), has died; neither Elkind nor his estate is a party to this action.
[6] During the relevant time period, Michalis was generally responsible for the day to day management of Eastside’s business while Elkind was generally responsible for banking and finance matters. In December 2007, the Defendants were retained by Eastside (and certain other related companies) to represent them in arranging a loan from Sub-Prime Mortgage Corporation (“Sub-Prime”). The loan transaction was signed in December 2007, and the funds were all fully advanced to Eastside by April 2008.
[7] After the transaction with Sub-Prime was completed, Eastside defaulted on the loan. Sub-Prime commenced an action for repayment of the loan in October 28, 2008. Eastside, at the direction of Michalis, put forward a defense of the Sub-Prime claim alleging that Michalis, a 50% shareholder, was not made aware of the Sub-Prime loan and had not authorized Eastside to enter into any loan transaction. Eastside and Michalis also alleged, much as in the present action, that the Defendants were negligent and in breach of their duties to the Plaintiffs in failing to advise Michalis about the loan and to get his agreement to it.
[8] Numerous affidavits and transcripts of cross-examinations have been filed in the Sub-Prime action, all of which have been reproduced in the record before me. This affidavit material indicates that the terms of the loan were negotiated by Elkind, on behalf of Eastside, and Terry Walman (“Walman”), on behalf of Sub-Prime. The loan documentation was executed by Eastside and Sub-Prime on December 21, 2007.
[9] The Sub-Prime loan funds were advanced to Eastside in two stages. The first advance, in the amount of $200,000, was made on December 21, 2007. The second advance, in the amount of $650,000, was made on April 3, 2008. The Plaintiffs do not contend that the funds were not in fact advanced by Sub-Prime.
[10] The record shows that in the usual course of their dealings, Elkind often signed banking and financial documents on behalf of Eastside, and that Michalis acquiesced in and agreed to that practice. Michalis admits in his own affidavit in the Sub-Prime action that in December 2007 he was aware that Elkind was seeking mortgage financing on behalf of Eastside. He knew that an existing mortgage that Eastside had was coming due and that Eastside was in the market to replace that previous mortgage at the time.
[11] Moreover, Walman testified in the Sub-Prime action that, while he generally dealt with Elkind in negotiating the loan, he also met with Michalis in respect of the Sub-Prime loan. The following exchange during Waltman’s cross-examination illustrates some of the dealings between Walman (representing Sub-Prime) and Michalis (representing Eastside) at the time:
Q. It’s correct that you inspected the property before you made the loan.
A. [Walman] Correct.
Q. Did you meet with Gus Michalis at the property?
A. I did. I met him at 540 King Street East in Hamilton. Gus was presented to me by both Mr. Elkind and Gus himself as being the property manager of 540 King Street East in Hamilton as well as the property manager of the other property further east, being 1544 King Street East in Hamilton. At 540 King Street East, he received both myself, the mortgage broker, Ed Wise, and a third party and I’m sure if I recall who that third party was. And he showed us around the building, showed us the electrical/mechanical rooms, showed us three or maybe four of the internal suites, introduced us to some of the tenants. And then after going through that particular property, we then in separate cars headed out to the other property I just mentioned, where Gus Michalis then showed us around that particular building as well.
[12] The record also shows that on December 7, 2007, two weeks before the loan was signed, one of the Defendants, Louis Alexopoulos (“Alexopolous”), received a telephone call from Michalis requesting an update regarding the loan negotiations with Sub-Prime. Alexopolous has produced his docket from that date, which clearly states: “Telephone call from G. Michalis regarding status of new financing”.
[13] Further, the record shows that Alexopoulos received another telephone call from Michalis on February 8, 2008 in which they discussed certain due diligence documentation that Sub-Prime was requiring Eastside to deliver prior to making its second advance of funds. Again, Alexopoulos has exhibited his docket from that date, which states: “Telephone conference with Gus Michalis regarding Mr. Walman and required further information to complete financing”.
[14] In February 2008, prior to the second advance of funds, Michalis arranged for an appraisal of the property owned by Eastside to be delivered to Walman. The written appraisal was transmitted directly from the appraiser, Brian Frewin Real Estate and Appraisals Limited (“Frewin”) to Walman on February 7, 2008. The covering letter of that date, sent from Frewin to Walman, reads:
As requested by Mr. Gus Michalis, this letter is to confirm that the above noted appraisal report may be used by Mr. Terry Walman of Sub-Prime Mortgage Corporation to place a mortgage on the subject property for Eastside Apartments.
[15] Walman confirmed this communication during his cross-examination in the Sub-Prime action, stating:
A. [Walman] …And of interest – of note is the letter of transmittal was requested by Gus Michalis, which one would understand from that that Gus was very aware that we were in the middle of financing/advancing to the property.
[16] Yet another appraisal of Eastside’s property was done on July 30, 2008, around the time that the term of the loan was being extended. This appraisal was also delivered to Walman, and was transmitted to him under cover of a letter that indicated “for the purposes of obtaining financing”. In his cross-examination, Michalis conceded that he was aware of this appraisal and that he would have picked up a copy of it himself.
[17] During the spring of 2008, the initial terms of the loan from Sub-Prime to Eastside were extended one year, from June 21, 2008 to June 21, 2009. The Defendants prepared this documentation, which was ultimately signed on July 31, 2008, as the final task in their retainer by Eastside. The Defendants had no further involvement with Eastside after this extension documentation was completed.
[18] Eastside ceased making payments on the Sub-Prime loan in September 2008. As indicated above, Sub-Prime commenced its action on October 28, 2008. Eastside failed to defend that action in a timely fashion, and Sub-Prime obtained default judgment on December 18, 2008. Eastside then brought a motion seeking to set aside the default judgment and an order permitting it to file a Statement of Defence and to issue a Third Party Claim against the Defendants.
[19] As already indicated, the basis of the Statement of Defence proposed (and eventually filed) by Eastside in the Sub-Prime action was that Michalis had not approved the loan. Further, the Third Party Claim proposed by Eastside in the Sub-Prime action made the identical allegations as are made in the Statement of Claim herein – i.e. that the Defendants were negligent and in breach of their duties to Eastside and Michalis in failing to inform Michalis of the Sub-Prime loan and in failing to obtain his consent to that loan.
[20] On June 3, 2009, Pollack J. granted an order in the Sub-Prime action setting aside the default judgment and permitting Eastside and Michalis to serve a Statement of Defence and to commence a Third Party Claim against the present Defendants. Eastside has served a Statement of Defence, Crossclaim and Counterclaim in the Sub-Prime action. That pleading was struck on June 28, 2010 for failure by Eastside to appoint a solicitor of record and for non-payment of outstanding costs orders in that action. Sub-Prime subsequently noted Eastside in default, and to date Eastside has taken no steps to set aside that default.
[21] Eastside and Michalis never issued a Third Party Claim against the present Defendants, although they were at liberty to do so following the order by Pollock J. The within action by Eastside and Michalis was commenced on October 28, 2010.
[22] I am confident that I have a sufficient record before me to obtain a “full appreciation of the evidence and issues that is required to make dispositive findings…by way of summary judgment”. Combined Air Mechanical Services Inc. v Flesch, 2011 ONCA 764, [2011] OJ No 5431, at para 50 (Ont CA). Michalis himself indicates that he had sparse communication with any of the individuals involved in this case, and every bit of verbal and written communication with them is already in the record. A trial judge is unlikely to hear more evidence than that contained in the record before me on this motion.
[23] It is clear from the evidence in the record that Eastside and Michalis were fully aware of the Sub-Prime loan as of the date of its signing – i.e. December 21, 2007. Michalis had by that time given a tour of the premises to Sub-Prime’s representative, Walman, and had received information about the loan over the telephone from Eastside’s lawyer, Alexopoulos. Michalis’ knowledge and acquiescence to Elkind’s signing of the Sub-Prime loan was re-confirmed in telephone calls with Alexopoulos and in correspondence between Walman and Ferwin in February 2008. Finally, Michalis testified that he personally picked up correspondence referencing the loan from Ferwin in July 2008.
[24] Any way one looks at this evidence, Michalis was aware of the Sub-Prime loan agreement, and thus of any potential claim based on entering that agreement, more than two years prior to the commencement of the within action. The action was commenced on October 28, 2010, and all of the relevant events which gave rise to, and made the Plaintiffs aware of, the cause of action occurred well before October 28, 2008.
[25] It is trite law that the limitation period begins to run as soon as the Plaintiffs know facts that lead them to believe that they have a meritorious claim; it does not wait until the Plaintiffs know the full legal significance of those facts of their case. Ferrara v Lorenzeti, Wolfe Barristers and Solicitors, 2012 ONSC 151, [2012] OJ No 135, at paras 9, 50 (SCJ). Further, if a solicitor’s negligence claim is raised in a prior action, the limitation period against those solicitors begins to run in the usual way – i.e. when the plaintiff becomes aware of the facts giving rise to the claim – and is not held in abeyance pending a finding in the previous action. Kenderry-Esprit v Burgess, MacDonald, Martin and Younger, 2001 28042 (ON SC), [2001] OJ No 776, at para 19 (SCJ).
[26] I do not find it difficult here to weigh the evidence or to draw inferences from it about whether Michalis knew the facts on which his claim depends more than two years before he commenced the present action. Michalis could not have given the lender a tour of his company’s property that would secure the loan, could not have inquired from Eastside’s lawyer about the status of the loan negotiations, could not have instructed appraisers to send appraisals of his company’s property to the lender, etc., without knowing of and acquiescing to the loan. This entire course of conduct took place between December 2007 and July 2008.
[27] As Plaintiffs, Eastside and Michalis are precluded under sections 4 and 5 of the Limitations Act, 2002, SO 2002, c.24, Sched. B (the “Act’), from commencing their action more than two years from the date the claim is first discovered. Under section 5(2) of the Act, the burden is on the Plaintiffs to rebut the presumption that they knew of their claim when it first arose. They have not satisfied that burden.
[28] If the Plaintiffs were to commence an action alleging some wrongful conduct by the Defendants relating to the Sub-Prime Loan, they would have had to issue the claim prior to December 21, 2009 or, at the very outside, July 31, 2010. The issue date of the within statement of claim – October 28, 2010 – is out of time.
[29] Where a plaintiff confronts a defendant seeking summary judgment on the expiry of a limitation period, the plaintiff must demonstrate that there are factual issues to be tried with respect to when the cause of action arose. If no such issues of fact need to be tried, the defendant will succeed in obtaining summary judgment. Ferrara, supra, at para 13.
[30] As I have held the action to be statute barred, there are no genuine issues requiring a trial. Given this finding, there is no reason to explore the other grounds for summary judgment raised by the Defendants.
[31] The action is dismissed.
[32] Counsel may make written submissions as to costs, to be sent to my attention within two weeks of the date of release of this judgment.
Morgan J.
Released: January 25, 2013
COURT FILE NO.: CV-12-449490
DATE: 20130125
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Eastside Apartments Limited and Gus Michalis
Plaintiffs
– and –
Rachel Loizos, Louis Alexopoulos and Sotos LLP
Defendants
REASONS FOR JUDGMENT
E.M. Morgan J.
Released: January 25, 2013