SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-481051

DATE: 20140403

RE: St Amour & Associates, Plaintiff

AND:

CD Tullis Inc. and Christopher Tullis, Defendants

BEFORE: Carole J Brown J

COUNSEL:
Melissa Arruda, for the Plaintiff

Colin Pendrith, for the Defendants

HEARD: February 27, 2014

ENDORSEMENT

[1] The defendants, moving parties, bring this motion pursuant to Rules 21.01(1)(b) and 25.06 for an order striking the statement of claim as against Christopher Tullis in its entirety on the ground that the statement of claim discloses no cause of action as against Mr. Tullis; an order that the oppression remedy claim against the defendants be struck on the ground that there is no legal basis on which a partnership can assert a claim for an oppression remedy against a former partner; and an order striking paragraphs 14 to 16 and 19 of the statement of claim on the grounds that they are evidence, are irrelevant, frivolous and vexatious, and are subject to settlement privilege.

The Action

[2] This Rule 76 action seeks damages against CD Tullis as well as its President and CEO personally for monies wrongfully taken and not repaid to the partnership in the amount of $83,576.

[3] The claims arise from events regarding the Amended and Restated General Partnership Agreement executed between the corporate entities on March 3, 2008, which was subsequently further amended on August 7 and December 20, 2012. The Agreement outlined the rights and obligations of the partners and principals of each corporation constituting the partnership.

[4] Pursuant to the statement of claim, which was issued May 23, 2013, St. Amour is a general partnership, operating as a national professional services recruitment firm. CD Tullis is a former partner of St. Amour. Christopher Tullis is the president and CEO of CD Tullis. The statement of claim alleges that Mr. Tullis acted personally and outside the scope of his legitimate corporate responsibilities as regards the events set forth in the statement of claim and is, therefore, personally named in this action.

[5] The statement of claim sets forth the provisions of paragraph 9.1 of the Agreement regarding sale of partnership units which states as follows:

Each partner shall benefit from an option to sell to the partnership all or part of its partnership units, at any time and from time to time, in consideration of a price equal to the share capital held by that partner.

[6] The statement of claim alleges that paragraph 9.1 presupposes a positive share capital existing in order for partnership units to be sold to the partnership. It alleges that the partnership advanced funds to Christopher Tullis via CD Tullis in the form of partnership drawings. Partnership drawings were paid from revenues that were generated by all partners of St. Amour, pooled together, and distributed pursuant to the allocation and distribution of profits outlined in the Amended and Restated General Partnership Agreement.

[7] It is alleged that on January 14, 2013, St Amour was advised that CD Tullis was withdrawing from the partnership, effective immediately. At that time, CD Tullis’ share capital was in a debt position of $-83,576, which the plaintiff demanded be repaid. It is alleged that Mr. Tullis acknowledged that he owed the partnership a certain portion of those funds, but not the full amount. That amount was never paid in part or full.

[8] Based on the foregoing facts, the plaintiff alleges that CD Tullis was in a fiduciary relationship with St Amour and, as a result of the wrongful conduct described above, breached its fiduciary duties causing damage to the plaintiff. Further, the plaintiff alleges that Mr. Tullis was unjustly enriched when he received the benefit of St Amour's partnership drawings advanced to the defendant, that St Amour suffered a corresponding deprivation for which there was no juridical reason and, as a result, the defendants were unjustly enriched. Finally, the statement of claim alleges conversion. It states that Mr. Tullis wrongfully converted St Amour's assets, namely the partnership drawings accessed through CD Tullis for his own personal use and has continued to deprive the plaintiff of these partnership drawings.

[9] Finally, the plaintiff alleges that the actions of Mr. Tullis, through CD Tullis, in misappropriating the partnership drawings for Mr. Tullis' personal benefit have been oppressive, unfairly prejudicial and have disregarded the interests of St Amour, constituting oppression. The particulars provided by the plaintiff in response to the defendants' demand for particulars indicate that the plaintiffs will rely on the Canada Business Corporations Act, R. S. C. 1985,c.C-44, s.241(2) in this regard.

[10] The defendants served a Notice of Intent to Defend dated June 7, 2013 and, on same date, served a Demand for Particulars.

[11] The Response to Demand for Particulars, received on October 11, 2013, provided greater detail as regards the basis for advancing partnership drawings, which, as regards CD Tullis, was alleged to be dependent on Mr. Tullis ability to generate revenue for his company, particulars of the debt, based on the advance of the $83,576, the value of the share capital held by the defendants at the time CD Tullis withdrew from the partnership and the fact that Mr. Tullis personally accessed and depleted the amounts advanced for his own personal use, acting in a manner which disregarded the interests of the plaintiff.

[12] The defendant takes the position that the statement of claim is entirely deficient of material facts to support the action as against Mr. Tullis in his personal capacity, that there are no facts or particulars to support an oppression remedy claim, and that paragraphs 14 through 16 and 19 of the statement of claim include evidence which is subject to settlement privilege, and are scandalous, frivolous and vexatious. Further, the defendants argue that the Response to Demand for Particulars provided was scarce and wholly devoid of material facts to further substantiate the claims as against Mr. Tullis and, indeed, that the response simply reiterated the facts alleged in the statement of claim.

The Issues

[13] The issues for determination by this Court are as follows:

1. Whether the plaintiffs have sufficiently pled the material facts to support the causes of action as against Mr. Tullis set forth in the statement of claim;

2. Whether there is a legal basis for the oppression remedy claim as against both defendants and;

3. Whether paragraphs 14 to 16 and 19 of the statement of claim should be struck on the basis that they plead evidence, are scandalous, frivolous and vexatious and subject to settlement privilege.

The Law

Rule 21.01(1)(b)

[14] The parties are in agreement as regards the general principles developed pursuant to Rule 21.01(1)(b), governing motions to strike pleadings.

[15] Rule 21.01(1)(b) permits the court to strike out a pleading on the ground that it discloses no reasonable cause of action or defence. No evidence is admissible on a motion pursuant to this rule.

[16] The test for 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. The pleading should not be struck if there is a chance that the plaintiff may succeed. Only if the action is certain to fail because it contains a radical defect should the relevant portions of the statement of claim be struck: Hunt v Carey Canada Inc., 1990 90 (SCC), [1990] S.C.J. No. 93, [1990] 2 S.C.R. 959. The issue to be determined is whether, assuming the alleged facts to be true, the action is nevertheless certain to fail: Louie v Lastman [2002] O.J. No. 3522, 61 O.R. (3d) 459 (Ont. C.A.). The test for striking a statement of claim at the pleading stage is stringent, with a difficult burden placed on the defendant. A germ or a scintilla of a cause of action will suffice to maintain the claim: Operation Dismantle Inc. v Canada, 1985 74 (SCC), [1985] S. C. J. No. 22, [1985] 1 S.C.R. 441. The claim should only be struck when the court is satisfied that the case is beyond doubt. When the legal issues are enmeshed in contested issues of fact, the case should proceed to trial. Only in the clearest of cases should a party be deprived of the opportunity of persuading a trial judge that the evidence and the law entitle it to a remedy or defence. Atlantic Steel Industries Inc. v Cigna Insurance Co. of Canada, 1997 12125 (ON SC), [1997] O. J. No. 1278, 30 30. R. (3d) 12 (Ont. C.A.).

[17] It is critical that the facts alleged in the statement of claim, as thin as they may be, should be taken as true for the purpose of determining on a Rule 21 motion whether the claim discloses a reasonable cause of action. To do otherwise is to effectively conduct a summary judgment proceeding under Rule 20 without having the sworn evidence of the parties to the litigation as the basis for determining whether there is a genuine issue for trial: Wilson v Toronto (Metropolitan) Police Service, [2001] O. J. No. 2434, affd [2002] O. J. No. 33 (Ont. C.A.).

[18] The governing principles as regards striking a statement of claim are as follows: all allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proven; the defendant, in order to succeed, must show that it is plain and obvious beyond doubt that the plaintiffs could not succeed; the novelty of a cause of action will not militate against the plaintiff; the claim incorporates by reference any documents pleaded and the court is entitled to read and rely on the terms of such documents as if they were fully quoted in the pleadings; the statement of claim must be read generously to allow for drafting deficiencies; and if the claim has some chance of success, it must be permitted to proceed. The threshold for sustaining a pleading is not high: McKinnon v Ontario Municipal Employees Retirement Board, [2007] O. J. No. 4860, 2007 ONCA 874 (Ont. C.A.).

[19] The plain and obvious test does not absolve the plaintiff from the 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.

Analysis

[20] Based on the pleadings in this action, and assuming the facts as stated in the claim to be true, I do not find it plain and obvious that there is no reasonable cause of action disclosed.

[21] In determining the issues before me, I have taken into account the governing principles to be applied, as set forth at paragraph 18, supra. While the statement of claim is not as detailed and ample as it could be, and the facts alleged may be thin, I have considered the issues based on a generous reading of the statement of claim to allow for drafting deficiencies. I am of the view that the material facts required for the allegations of fiduciary duty as against CD Tullis and unjust enrichment as against both defendants, which have also been particularized in the Response to Demand for Particulars, assuming that they can be proven, establish causes of action which would entitle the plaintiff to some sort of relief, as alleged.

[22] As regards the fiduciary duty owed by CD Tullis, the statement of claim clearly alleges that the corporate parties were in a fiduciary relationship, as partners and that CD Tullis breached its fiduciary duty to the plaintiff by leaving a negative share capital, having withdrawn $83,576 partnership drawings without having generated revenues, without repaying the debt when it withdrew from the partnership.

[23] As regards the allegations of unjust enrichment against both parties, the statement of claim alleges the requisite elements of the claim for unjust enrichment, namely the benefit on the part of the defendants, the corresponding deprivation suffered by the plaintiff and no juridical reason for said benefit on the part of the defendant. The facts as regards the benefit, deprivation and lack of juridical reason therefore are set forth in the body of the claim, namely that the defendants received a partnership advance of $83,576 from which Mr. Tullis benefited personally, that thereafter CD Tullis withdrew from the partnership leaving a negative balance in the share capital account of -$83,576, which Mr. Tullis thereafter acknowledged owing, but not in the amount claimed, and thereafter refused to pay.

[24] I find that both the claims of breach of fiduciary duty and unjust enrichment as set forth in the pleadings are sufficient to found the cause of action and it is not clear and obvious that no reasonable cause of action is disclosed.

[25] As regards the oppression remedy sought, the plaintiff submits that the case law supports the oppression remedy pleading at this stage as the threshold of sustainability of pleadings is very low, and relies on Scotia McLeod Inc.v Peoples Jewelers Ltd, 1995 CanLll 1301 (ONCA). It submits that the legal basis for the oppression remedy claim is supported by the material facts pled, namely that Mr. Tullis personally accessed and depleted $83,576 of partnership drawings advanced to CD Tullis by the plaintiff, which was used by Mr. Tullis for his own personal benefit and that, as a result, Mr. Tullis caused the Corporation he controlled to commit a wrongful act. I am of the view, however, that the statement of claim does not set forth sufficient material facts to sustain the oppression remedy claim. I do not find, however, that it is it is so deficient or devoid of merit that it should not be permitted to be amended. Accordingly, I strike paragraphs 23 and 24, with leave to amend.

[26] The defendants also submit that paragraphs 14-16 and 19 of the statement of claim are frivolous, vexatious, that they plead evidence contrary to the rules of pleading, Rule 25.06, and are subject to settlement privilege. I find that paragraphs 14 and 15 plead settlement offers between Mr. Tullis and the plaintiff, which are subject to settlement privilege and should be struck. Paragraph 16 alleges that Mr. Tullis personally acknowledged his debt to the plaintiff, but disputed the amount. I do not find this to be a pleading of evidence, nor a pleading which would attract settlement privilege. Paragraph 16 should not be struck. As regards paragraph 19, which sets forth Mr. Tullis' advice to the plaintiff that CD Tullis has no assets and is, therefore, unable to pay any debt, I do not find this to be a pleading of evidence, nor is it frivolous or vexatious. I find it to be relevant to the issue in dispute and the claim as a whole. Accordingly, if it is relevant, it cannot be scandalous: Quinzo's Canada Restaurant Corp. v Kileel Developments Ltd, 2008 ONCA 644, [2008] O. J. No. 3674 (C.A.)

Conclusion

[27] Based on the foregoing, I order as follows:

1. Paragraph 23 and 24 are struck, with leave to amend;

2. Paragraphs 14 and 15 are struck as the allegations are subject to litigation privilege;

3. The balance of the statement of claim remains.

Costs

[28] 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: April 3, 2014