COURT FILE NO.: CV-13-472482

COURT FILE NO.: CV-13-487701

DATE: 20140318

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

KALIN JOHNSON, CATHERINE JOHNSON and 2213729 ONTARIO INC.

Plaintiffs

– and –

SCOTT STUDLEY, RJS PRIVATE WEALTH MANAGEMENT INC., INTEGRATED PLANNING & SOLUTIONS INC. and LOUIS ROSANOVA

Defendants

Bevan Brooksbank, for the Plaintiffs

Roger Horst, for the Defendant Scott Studley

AND BETWEEN:

KALIN JOHNSON, CATHERINE JOHNSON and 2213729 ONTARIO INC.

Plaintiffs

– and –

ARMSTRONG & QUAILE ASSOCIATES INC.

Defendant

Bevan Brooksbank, for the Plaintiffs

Roger Horst, for the Defendant

HEARD: March 11, 2014

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

1Kalin and Catherine Johnson and 2213729 Ontario Inc. are the Plaintiffs in two related actions. In the first action, which was commenced on January 23, 2013, they sue Scott Studley, RJS Private Wealth Management Inc., Integrated Planning & Solutions Inc., and Louis Rosanova. In the second action, which the Johnsons commenced on August 27, 2013, they sue Armstrong & Quaile Associates Inc.

2The two 2013 actions concern failed investments in Seaquest Companies and in Olympus United Funds Corp. (“Olympus”).

3In two related summary judgment motions, Mr. Studley and Armstrong & Quaile Associates Inc. submit that there is no genuine issue for trial that certain claims are statute-barred under the Limitations Act, 2002.[1] These Defendants submit that the claims against them with respect to the Johnsons’ failed investment in Olympus are untimely.

4I agree, and for the reasons that follow, I grant the summary judgment motions.

B. FACTUAL AND PROCEDURAL BACKGROUND

5Until their retirement in April 2010, the Johnsons owned and operated a successful bindery business that they had established in 1986. They are high school graduates with no post-secondary education. They describe themselves as unsophisticated, inexperienced, and uninformed investors who trusted and who were totally dependent and reliant upon their financial advisors. For the purposes of the summary judgment motions, I shall accept their self-assessment as true.

6Mr. Studley is an investment advisor, and he was a registered mutual fund representative from 1993 until 2009. In 2000, Mr. Studley became the financial advisor for the Johnsons.

7Between 2004 and 2009, Mr. Studley was registered at the mutual fund dealership of the Defendant Armstrong & Quaile Associates Inc.

8In August 2001, after Mr. Studley’s recommendation, Mr. Johnson borrowed $150,000 and invested it in units in Olympus, the main fund of the hedge fund Norshield Financial Group. Mr. Johnson did not understand how Olympus was structured and managed, and he simply relied on Mr. Studley’s recommendation.

9The Johnsons submitted that Mr. Studley encouraged them to invest in Olympus, telling them that Olympus was well-managed and posed little risk because of its small size.

10In February 2004, after Mr. Studley’s recommendation, Mrs. Johnson invested $35,000 in units in Olympus. Mrs. Johnson did not understand how Olympus was structured and managed and again the Johnsons simply relied on Mr. Studley’s advice and recommendation in making the investment.

11The investment, however, did not succeed. On May 2, 2005, Olympus announced that it was deferring redemptions of units, and on May 6, 2005, Mr. Studley wrote the Johnsons to tell them of the deferral of Olympus redemptions and to recommend to them that they liquidate their investment.

12On May 24, 2005, the Ontario Securities Commission issued a press release announcing that it had suspended the registration of Olympus, and in November 2005, notice was given that Olympus was being placed into receivership, and investors would be unable to redeem units.

13On November 22, 2005, Mr. Studley wrote the Johnsons to advise them that the Olympus group of companies was under the receivership of RSM Richter and that a receiver’s report was available online.

14Mr. Johnson admits that in 2005, as a result of the correspondence he had received from Mr. Studley, he knew that Olympus “blew up”. However, he did not know what had actually caused the business failure.

15On January 26, 2006, the Johnsons received an invitation from RSM Richter to attend an information meeting on February 21, 2006. The Johnsons did not attend the information meeting, but Mr. Studley did attend, and he says that in 2006, he told the Johnsons and the other clients who had invested in Olympus that their investment was essentially lost.

16On May 5, 2006, RSM Richter released a Newsletter that was sent to Olympus investors, including the Johnsons. The Newsletter indicated that RSM Richter was engaged in identifying and attempting to recover the assets of Olympus.

17In 2006 and 2007, six lawsuits were commenced against Mr. Studley by clients in respect of his advice to invest in Olympus. He eventually settled those actions, but the terms of settlement have not been disclosed.

18Until 2011, the Johnsons were not aware of these actions against Mr. Studley. They never asked him if he had been sued, and he never volunteered the information.

19On January 23, 2007, Mr. Johnson sent an email message to Mr. Studley and asked about the status of the Olympus investment that “has gone off the rails.” He asked: “Is there any news on how much can be salvaged or what’s happening next?”

20On January 26, 2007, Mr. Studley responded that he had no news but that “at this point, it is definitely not looking promising for any major recovery.” Mr. Johnson admitted during cross-examination that in early 2007, he anticipated that he would likely lose around $75,000 from his investment in Olympus.

21In early 2007, the Johnsons received yearend statements from Armstrong & Quaile Associates Inc. The statements did not provide a value for the Olympus investment expressly because any market value could not be determined at that time.

22In 2008, Mr. Studley’s E&O insurer refused to renew his insurance policy. Mr. Studley did not advise the Johnsons that he no longer had insurance.

23In 2009, Mr. Studley decided not to renew his licence as a mutual fund representative, in part, because he could no longer obtain E&O insurance. He did continue his involvement in the financial sector. He owns RJS Private Wealth Management Inc., a financial investment firm. He is a partner of Integrated Planning & Solutions Inc., where he acts as a group retirement and pension specialist.

24In August 19, 2009, Mr. Studley wrote an email to the Johnsons and met with them to advise that Louis Rosanova, a colleague at RJS Private Wealth Management Inc., would now be dealing with their matters. Mr. Studley did not explain to the Johnsons that he was no longer a mutual fund representative or that he was no longer able to obtain E&O insurance.

25The Johnsons met with Mr. Rosanova and understood that he was becoming involved with their account, but they did not appreciate that Mr. Studley would no longer be acting for them.

26On September 24, 2009, the Johnsons signed New Client Application Forms that changed their mutual fund dealer from Armstrong & Quaile Associates Inc. to FundEx Investments Inc. The completion of the applications also changed the Plaintiffs’ financial advisor from Mr. Studley to Louis Rosanova.

27On October 28, 2009, the Johnsons received a letter from Armstrong & Quaile Associates Inc. advising them that Mr. Studley was no longer associated with them.

28In November 2009, Mr. Studley contacted the Johnsons to advise that he had formed Integrated Planning & Solutions Inc.

29In September 2011, Olympus entered into an arrangement under Companies’ Creditors Arrangement Act. According to the Second Report of the Monitor RSM Richter Inc., the various Olympus entities operated in concert and with common interest despite attempts to give the appearance that they were arms-length and independent. Funds that flowed through the Olympus Companies were dissipated through artificially inflated redemptions and unexplained payments to related companies. The Monitor found an enormous disparity between the real and reported values of the assets purportedly held by the Olympus Companies.

30In early November 2011, the Johnsons had a meeting with Mr. Rosanova and they say that they learned for the first time that Mr. Rosanova had taken over their accounts without Mr. Studley’s involvement because Mr. Studley had been sued by several Olympus investors and had lost his E&O insurance.

31The Johnsons ultimately recovered $13,819.34 on their $185,000 investment in Olympus.

32On January 23, 2013, the Johnsons (and their company 2213729 Ontario Inc.) commenced an action against Mr. Studley, RJS Private Wealth Management Inc., Integrated Planning & Solutions Inc., and Mr. Rosanova. The action concerned the investments in Olympus and also investments made in the Seaquest Companies.

33With respect to the investment in Olympus, the Johnsons plead the following allegations of negligence against Mr. Studley in paragraph 37 of their Statement of Claim:

37. Studley … owed a duty of care to the Plaintiffs as [his] clients and as reasonably foreseeable and proximate parties, and failed to meet [the] standard of care by the following actions and/or omissions:

(a) Studley … failed to act as prudent and reasonable investment [advisor] by placing the Plaintiffs in unsuitable investments;

(b) Studley … disregarded the “know your client” forms prepared for the Johnsons, as well as the Johnsons’ known investment objectives, in rendering … financial advice;

(c) Notwithstanding that [he] knew the Johnsons were planning to retire, Studley …. advised and encouraged the Johnsons to invest in unsuitable investments exposing them to high levels of risk rather than conservative investments generating retirement income;

34On August 27, 2013, the Johnsons (and their company 2213729 Ontario Inc.) commenced an action against Armstrong & Quaile Associates Inc. The Johnsons allege that Armstrong & Quaile Associates Inc. is vicariously liable for the negligence of Mr. Studley and Mr. Rosanova with respect to the Olympus investment.

35On November 22, 2013, Mr. Studley and Armstrong & Quaile Associates Inc. brought summary judgment motions to have the the Johnsons’ claims with respect to their investment in Olympus dismissed as statute-barred.

36It was agreed that if this motion is successful it will be for the benefit of all Defendants, not just the moving parties. The claims with respect to Seaquest are not affected.

37Before the summary judgment motions, the parties did not exchange affidavits of documents and no examinations for discovery have been conducted. For the summary judgment motions, Mr. Studley and the Johnsons delivered affidavits upon which they were respectively cross-examined.

C. DISCUSSION AND ANALYSIS

1. Introduction

38Mr. Studley and Armstrong & Quaile Associates Inc. submit that the Johnsons’ negligence claims against all the Defendants with respect to the Olympus investments are statute-barred because the two-year limitation period began to run no later than 2007 and may have commenced as early as 2005, and thus the Johnsons’ two actions in 2013 are statute-barred. The moving party Defendants say that there is no genuine issue requiring a trial about the running of the limitation period.

39The Johnsons submit, however, that they did not know that they had a claim against Mr. Studley until 2011 when it was revealed to them that: (a) Mr. Studley had been sued by other Olympus investors; (b) Mr. Studley’s E&O insurer would not insure him; and (c) Mr. Studley had transferred his responsibilities as an investment advisor to Mr. Rosanova.

40The Johnsons say that the discovery of these facts, which identify Mr. Studley as a potential Defendant, was necessary for the commencement of the running of the limitation period.

41Alternatively, the Johnsons say that the omission of Mr. Studley to bring these facts to their attention was a fraudulent concealment that postponed the commencement of the running of the limitation period.

42The Johnsons submit that either there is a genuine issue requiring a trial about the running of the limitation period or if there is no genuine issue requiring a trial it is because they have shown that their claims are not statute-barred.

43Thus, both parties submit that the court can decide the limitation period issue on the summary judgment motion in their respective favours.

44As I will explain below, I agree with Mr. Studley’s and Armstrong & Quaile Associates Inc.’s arguments that the Olympus negligence claims are statute-barred, and, therefore, I grant their motions for summary judgment.

(Decision continues verbatim through paragraphs [45]–[86] and footnotes exactly as provided in the source text.)

Perell, J.