Court File and Parties

COURT FILE NO.: CV-10-415074

DATE: 2013-11-27

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Perth Insurance Company, Plaintiff

AND:

Osler Rehabilitation Centre Inc., Andrew Greszczyszyn, Elana Silverman, Irina Roshchina, Assessment Direct Inc. and Rikardur “Rik”, Defendants

BEFORE: Carole J. Brown J.

COUNSEL:
Ian D. Kirby, for the Plaintiff

Richard H. Shekter, for the Defendants

HEARD: October 16, 2013

ENDORSEMENT

[1] The plaintiff brings this R.76 action for alleged conspiracy to defraud and for fraud resulting in its paying out fraudulent SAB benefits on behalf of an insured for services allegedly rendered to the insured by the defendants.

[2] The defendants bring this Rule 21.01(1)(b) motion to strike the statement of claim or to strike the claim for conspiracy on the basis of the doctrine of merger. In the alternative, they seek to strike the claim on the basis that the plaintiff has failed to plead the requisite elements of conspiracy.

[3] The position of the defendants is that, based on the pleadings in this case, the claim of conspiracy, as pleaded, merges with the claim of fraud and should be struck out under R. 21.01 (1)(b) for failing to disclose a reasonable cause of action. They submit that the law in Ontario is clear that where a plaintiff pleads that a defendant conspired to commit a fraud and then carried it out, the claim of conspiracy merges with the claim of fraud. In this regard, they rely on the cases of Graye v Fillitier, 1997 CarswellOnt 5335; Allstate Insurance Company v Fairview Assessment Center, 2013 ONSC 5446; Normart Management Ltd. v West Hill Redevelopment Co., 1998 2447 (ON CA), 1998 CarswellOnt 251, 155 DLR (4th) 627 (Ont C.A.); Apple Bee Shirts Ltd. v Lax, 1988 O. J. No. 658, and Sun Life Assurance Co. of Canada v 401700 Ontario Ltd., 1991 7050 (ON SC), 3 O.R. (3d) 684. They submit that there is no distinction on the facts pleaded, between the allegations of conspiracy and the fraud. There is no stand alone conspiracy plea. Further, there are no damages incurred associated referable only to the conspiracy. Indeed, the damages are related to the fraudulent claims which resulted in payments by the insurer.

[4] It is further, in the alternative, the position of the defendants, that the claim of conspiracy, as pleaded, is fundamentally deficient and ought to be struck pursuant to Rule 25.06. The defendants argue that the substantive requirements of a proper conspiracy pleading, which comprise five constituent elements, are deficient. They acknowledge that three of the requisite elements are properly pleaded but submit that the pleading fails to plead two of the requisite elements of conspiracy, namely (i) who the several parties are and their relationship with each other and (ii) the injury and damage occasioned by the plaintiff as a result of the alleged conspiracy.

[5] It is the position of the plaintiff that the doctrine of merger does not apply. The plaintiff submits that there can be situations where there may be conspiracy, where the conspirators are not caught in the act, but damages result nonetheless. The plaintiff relies on Hunt v Carey, 1990 90 (SCC), [1990] 2 S.C.J. 959 (S.C.C.), [1990] S.C.J. No 93, and submits that is not possible to determine whether merger has taken place until it is known whether a fraud was committed, which can only be determined at trial on a full record.

[6] The plaintiff further relies on Private Equity Management Co. v. Vianet Technologies Inc. [2000] O.T. No. 1398 and Dominion of Canada General Insurance Co. v. MD. Consult [2013] O.A. 1087. As regards the defendants’ argument that the claim should be struck due to the fact that the conspiracy is not properly pleaded and fails to include all of the requisite elements, the plaintiff submits that, at this juncture, it does not know all of the details of the alleged conspiracy and fraud, does not know the relationships of all involved, that there may be further damages uncovered, and there may be parties involved in “kick back” schemes. The plaintiff submits that it would be an injustice to strike the claim at this juncture prior to trial and relies in this regard, on Leschyna v. CIBC World Markets Inc., [2005] O.J. No. 5678. The claim can be amended as necessary if further information is forthcoming.

[7] It is further the position of the plaintiff that a Rule 21.01 motion is to be brought promptly and that there has been significant delay in the defendants bringing this motion. I note that this action was commenced on November 25, 2010, a Notice of Intent to Defend dated February 17, 2011 was served and filed, and on same date, a Demand for Particulars was made. A motion for particulars resulted in the Order of Master Dash dated April 14, 2011, with the particulars provided by the plaintiff on November 8, 2011. This motion to strike was served on September 30, 2013. There is no explanation of the delay.

[8] I note that, pursuant to the Order of Master Dash dated April 14, 2011, the plaintiff provided particulars of the alleged conspiracies on November 8, 2011. The particulars included the dates of submission of the alleged fraudulent invoices, the dates of the impugned services allegedly rendered and the service provider and particulars of the alleged overt acts committed by the defendants in furtherance of the alleged conspiracy, including specific dates the acts conducted and by whom. These particulars provided by the plaintiff are deemed to form part of the statement of claim.

The Statement of Claim

[9] The plaintiff alleges in the statement of claim that the defendants, jointly and severally, conspired to misrepresent the services provided and defraud the plaintiff by submitting fraudulent claims for payment for services allegedly rendered to the insured of the plaintiff for benefits under the Statutory Accident Benefits Schedule ("SAB"). The plaintiff alleges that by virtue of its obligation to deal with the claims presented pursuant to the SAB schedule, the plaintiff, in good faith, paid for the services claimed by the defendants. The plaintiff alleges that it subsequently ascertained, pursuant to an investigation undertaken, that the insured had not attended and had not received all of the services claimed and paid. The plaintiff states that it paid out fraudulent claims for services not incurred, as a result of which, it has sustained damages for investigative and legal fees, adjustment overhead and other losses and expenses and has sustained a loss of profits, additional overhead, internal expenses, special levies and common expenses for adjustment, for which it claims management and investigation levies. The plaintiff claims special damages in the amount of $50,000, as well as punitive exemplary and/or aggravated damages in the amount of $50,000. There is only one set of damages claimed for the conspiracy and the fraud.

The Law

Rule 21.01(1)(b)

[10] Pursuant to Rule 21.01(1)(b) a party may move before a judge to strike a pleading on the ground that it discloses no reasonable cause of action or defence. No evidence is admissible on a motion under Rule 21.01(1)(b). The purpose of Rule 21.01(1)(b) is to enable a judge to strike from the pleadings claims and defences that do not, in law, have a chance of succeeding. The test to be applied in determining whether a pleading should be struck is whether, assuming the facts as stated in the statement of claim can be proven, it is plain and obvious that no reasonable cause of action is disclosed. If the facts, taken as proven, disclose a reasonable cause of action, i.e. a cause of action with some chance of success, then the action must proceed. The threshold for sustaining a pleading is not high, although in the context of this case, where fraud is alleged, the rules for pleading fraud, contained at Rule 25.06 must be adhered to. The pleading must be read generously to allow for drafting deficiencies.

[11] The plain and obvious test does not absolve the party pleading from an obligation to observe the rules of pleading. The cause of action asserted may be found to be legally insufficient if there has been a failure to plead material facts necessary to establish the legal elements of a recognized cause of action, or if it is clear that the law does not recognize the cause of action on which the plaintiff seeks to rely.

Conspiracy and the Doctrine of Merger

[12] Pursuant to the jurisprudence, where the plaintiff pleads that the defendants have conspired to commit a fraud and also have successfully carried that fraud out, the doctrine of merger applies such that the conspiracy claim is considered redundant and struck. This principle is set forth in Normart Management Limited, supra., as follows:

It is important to remember that when a tort has been committed by two or more persons, an allegation of a prior conspiracy to commit the tort adds nothing.

[13] In the case of Apple Bee Shirts Limited, supra, Gray J. stated the proposition as follows:

… its plea of conspiracy adds nothing because the basic proposition of the plaintiff is that [the Defendants] planned to do something and then actually did it. This really involves a so-called merger…

[14] In Graye v Fillitier, supra, which involved a claim for conspiracy to release confidential information in order to injure the plaintiff, which information was subsequently released, Ground J., stated as follows:

The pleading of conspiracy amounts in fact to a pleading that the defendant Trethewey and the co-conspirators conspired to commit specific torts and that the objective of that conspiracy had been achieved in that the specific torts were committed. In my view, a pleading that the defendants conspired to do something and then actually did it resulting in the commission of specific torts, which are also pleaded, adds nothing and should be struck… The facts pleaded on which conspiracy is based are the same as those pleaded with respect to the specific torts and no special injury or special damages arising from the conspiracy are pleaded…

[15] In the 2012 case of Wolf v Attorney General (Ontario), 2012 ONSC 72, which involved a pleading of conspiracy to maliciously prosecute the plaintiff and then conducting the prosecution, Pollock J. of this Court applied the doctrine of merger, stating as follows:

… Conspiracy may be pleaded as a stand-alone tort only where the conspirators stop short of committing the tort which is the object of the conspiracy. Once the object tort is committed, the doctrine of merger is applied with the result that the conspiracy is merged with the tort that is committed; that is, the claim for conspiracy becomes redundant.

[16] In the very similar case of Allstate Insurance Company v Fairview Assessment Center (2013), supra, it was alleged that the defendants had conspired to commit fraud by submitting fraudulent insurance claims to the plaintiff insurer in relation to insured services allegedly provided to the patient who had been injured in car accidents, which services were allegedly never performed. The plaintiff further alleged that the fraud was successfully carried out. In that case, in striking the conspiracy pleading, McCarthy J. stated:

This is not a case where conspiracy is pleaded in the alternative because it is uncertain to the plaintiff whether the benefit claims were submitted or the charges incurred… There is nothing that needs to be left to the trial judge here; the claim in conspiracy adds nothing to the pleading as constituted. It is redundant. Applying the doctrine of merger, therefore, the claim in conspiracy cannot be maintained and must be struck.

[17] In the case of Hunt v Carey, supra, relied on by the plaintiff, there were separate and distinct nominate torts pleaded in addition to the action in conspiracy. Wilson J, writing for the Supreme Court concluded that:

"… one simply could not decide whether this "merger" had taken place without first deciding whether the plaintiff had proof that the other tortious acts have been committed.… If the plaintiff is successful with respect to the other nominate torts, then the trial judge can consider the defendants' arguments about the unavailability of the tort of conspiracy. If the plaintiff is unsuccessful with respect to the other nominate torts, the trial judge can consider whether he might still succeed in conspiracy. Regardless of the outcome, it seems to me inappropriate at this stage in the proceedings to reach a conclusion about the validity of the defendants' claims about merger. I believe that this matter is also properly left for the consideration of the trial judge."

[18] That case involved an alleged conspiracy on the part of the employer to withhold information regarding the dangers of asbestos fibers to the health of the workers, such as the plaintiff, which resulted in the plaintiff's contracting mesothelioma. That case is distinguishable from the present case, in that in this case, the act of conspiracy to defraud and the pleading that the fraud actually occurred are not separate and distinct.

[19] In this case, the issuance of the claim is for damages which resulted from the defendants allegedly filing false or fraudulent insurance claims and receiving payment from the insurers for said fraudulent claims. There is no stand-alone tort of conspiracy which resulted in damages, nor are there other nominate torts to be determined. The claim is that the defendants committed fraud, which makes the claim for conspiracy to commit the fraud redundant.

Analysis

[20] With respect to the motion to strike the Statement of Claim or the claim for conspiracy, to defraud, I am of the view that the doctrine of merger applies. The plaintiff has pled conspiracy to defraud, which resulted in the act of defrauding the plaintiff, resulting in damages to the plaintiff. As the actual fraud has been pled, the conspiracy adds nothing and is redundant. There is no stand-alone tort and stand-alone claim of conspiracy separate and distinct from the underlying fraud and no damages referable only to the conspiracy. The damages pled including the incidental damages all relate to the fraud. This is not a case which can only be determined at trial, as was the case in Hunt v. Carey, supra,, relied on by the plaintiff. In that case, the issue was whether a claim for conspiracy should be struck where other nominate torts, including negligence were also pled. The Supreme Court of Canada held that it could not be determined whether these other torts may or may not be successful such as to potentially preclude the claim of conspiracy. This case is different. The conspiracy and the actual tort alleged to have been committed are the same, namely conspiracy to defraud and the act of defrauding, such that the allegation of conspiracy adds nothing. Here the alleged conspiracy and tort are not separate and distinct, as is the case in Hunt v. Carey, Private Equity, and Dominion of Canada, but derive from the same tort, namely fraud. Here, the set of facts pled in relation to conspiracy were the same as those pled with respect to the nominate tort and no special damage claim was made in relation to conspiracy. It is not a case that will be dependant on findings regarding other nominate torts before a determination regarding the doctrine of merger can be made.

[21] In this case, based on the pleadings, the doctrine of merger does apply. The allegations related to conspiracy are alleged to have occurred resulting in the payment of claims to the defendants which were allegedly fraudulently claimed. As such, the allegations regarding conspiracy as a separate tort become redundant as they are merged in the claim for fraud. I find that the claims for conspiracy, having merged with the claims for fraud are to be struck, with leave to make any necessary amendments to make it clear that all claims are alleged in fraud rather than conspiracy to commit fraud.

[22] As regards the issue of deficiency of the pleading of conspiracy, this need not be answered as a result of the above finding. However, I will deal with the issue in order to expedite this matter.

[23] While the plea of conspiracy has been struck with leave to amend the claims of fraud, I need not determine this issue. I am of the view, however, that the pleadings, as framed and particularized, read in conjunction with the Response to Demand for Particulars is sufficiently pled such that the defendants know the case to be met. I note however, that the allegations of fraud must be particularized which is particularly important in order to narrow the issues in this R. 76 action to ensure proportionality at the discovery stage, as recognized by Master Dash. While I do not find that the claim in fraud is not properly particularized, I make this comment only to emphasize the need for particularization in the amended claim in order to expedite the proceeding.

[24] I find that, taking into account the particulars provided, the claim is sufficiently clear for the defendant to know the case to be met in order to provide a defence.

Costs

[25] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: November 27, 2013