SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-13-480-634

DATE: 20140123

APPLICATION UNDER the Partition Act, R.S.O. 1990, c. P.4, as amended and Rule 14 of the Rules of Civil Procedure

RE: ANTONIO PAGLIA, Applicant

AND

DARIO FAVOT, DANNY VERRILLI AND 2037125 ONTARIO INC.,

Respondents

BEFORE: STEWART J.

COUNSEL:
John P. Ormston, for the Applicant

James S. F. Wilson, for the Respondents

HEARD: September 23, 2013

ENDORSEMENT

[1] Antonio Paglia applies for an order requesting the sale of property at 35 Nixon Road, Unit 11, Bolton, Ontario.

[2] The Respondents resist the relief sought. Although they acknowledge Paglia’s ownership interest in the property, they argue that there is concurrent litigation in progress among the parties which involves matters which are inextricably tied to the question of whether a sale of this property should proceed. In addition, they assert that there are outstanding debts owing in relation to the property which make it inequitable to deal with the property in isolation from the other claims advanced by the parties.

Background

[3] The issues arising in this application and in the actions described herein involve six individuals and their various corporations. The individuals include the Respondents Dario Favot and Danny Verrilli as well as John Di Costanzo, Denis Furlan, and Vito Nardi (the “Five Individuals”) and Paglia. The corporations are those which comprise the Verdi Alliance Group which the Five Individuals and Paglia own, control and work for, in various combinations either alone, with each other and/or with third parties.

[4] The Five Individuals and Paglia formed the Verdi Alliance Group in 2004. They conducted business together in the construction industry by forming various companies, purchasing equipment, coordinating their business activities and sharing the benefits.

[5] The basic business model was that each participant drew a salary from his own business. At the same time, the companies they owned together acquired equipment and machinery, other businesses rented and leased that equipment, and the income thus generated was distributed to the Five Individuals and Paglia as remuneration for the services of the particular businesses, dividends to shareholders and/or bonuses.

[6] The Respondents maintain that it was expected that each person would work full time in the overall enterprise, each would devote substantial efforts to and maintain responsibility for his particular business, and would help to manage and grow the overall enterprise.

[7] The revenues of the combined entities tripled and the profits doubled between 2007 and 2011. The Respondents assert that this success was due solely to the full-time efforts of the Five Individuals without the assistance of Paglia. In the fall of 2011, the Five Individuals reached the conclusion that the situation could not continue and informed Paglia that they wished to end their business relationship with him.

[8] Beginning in January 2012, the Five Individuals began to negotiate with Paglia about his compensation from the Verdi Alliance Group. The determination of his compensation necessarily requires assessment of various interests in property, assets and income streams. This issue has given rise to disagreement between the Five Individuals and Paglia.

[9] In July 2012, Paglia initiated an application against the Five Individuals and the companies in the Verdi Alliance Group under s. 248 of the Ontario Business Corporations Act. Paglia alleged that, while he only owned shares in some of the corporations in the Verdi Alliance Group, he is actually a shareholder or the owner of an interest in all of them.

[10] After Paglia initiated this application, the parties agreed to deal with the issues by way of an action or actions. Accordingly, the Five Individuals and the corporations in the Verdi Alliance Group initiated an action and Paglia also initiated an action. It has been agreed that the two actions will be heard together.

[11] The actions deal with many of the same underlying facts as Paglia’s OBC Application. In his action, Paglia makes allegations that are similar to the allegations he made in that application. The Five Individuals likewise seek a declaration that Paglia is in breach of contract and that his conduct as a director and officer of some of the corporations in the Verdi Alliance Group has been oppressive to the other shareholders, directors, and officers of these corporations within the meaning of s. 248 of the OBCA. They also seek a declaration that Paglia’s entitlements to shares and other compensation from the relevant corporations should be fixed at levels that reflect his alleged breaches of contract and failure to fulfill his duties as a director. They further claim disgorgement by Paglia of payments made in the past to the extent that they exceed his entitlements.

[12] The issue of Paglia’s entitlement to compensation with respect to the business of the Verdi Alliance Group and the amount thereof are among the central issues in the above-mentioned actions. Indeed, the individual Respondents claim that Paglia has been overcompensated by an amount of several million dollars.

[13] The parties have agreed to a schedule for the actions. Discoveries were scheduled to take place by the end of November 2013. The balance of the steps in the actions were to be scheduled at a case conference. It is apparent that the actions are progressing in the normal manner toward a relatively prompt adjudication.

[14] The within application involves property acquired by the parties during the course of their business operations and before this dispute arose.

[15] In 2010, a corporation that Favot controls in the Verdi Alliance Group (the Respondent 2037125 Ontario Inc.) acquired the Bolton property for the purpose of storage. Thereafter, Favot, Verrilli and Paglia agreed that they would each share a one-third interest in the Bolton property.

[16] To account for their interests in the Bolton property, Favot, Verrilli and Paglia made adjustments to their respective compensation from the Verdi Alliance Group.

[17] The Respondents assert that in the fall of 2011 Paglia elected to withdraw from his interest in the Bolton property, removed his belongings from it and has not sought access to it since then. Paglia apparently maintains that he was improperly locked out of the property by the others.

[18] The Respondents claim that if Paglia is to be compensated for his interest in the Bolton property in the same way that he acquired it, it should be by way of a yet-to-be-determined adjustment to his compensation from the Verdi Alliance Group. They ask that this application be consolidated with the other ongoing actions and dealt with at the same time.

Issue

[19] Should the requested sale be ordered at this time and, if so, on what terms?

Discussion and Law

[20] It is normally the case that where an applicant has an interest in property, he has a prima facie right to compel partition or sale in the absence of malice, oppression or vexatious intent (see: Greenbanktree Power Corp. v. Coinamatic Canada Inc., 2004 48652 (ON CA), 2004 Carswell Ont. 5407 (Ont.C. A.)).

[21] However, a sale under the Partition Act should not be ordered where matters that are inextricably tied to whether the sale should proceed remain to be tried (see: Al-Ghabra v. Al-Ali, [2010] O.J. No. 301 (S.C.J.)).

[22] The court has the discretion pursuant to Rule 6.01 of the Rules of Civil Procedure to consolidate proceedings and to give such directions as are just to avoid unnecessary costs or delay where it appears that:

(a) they have a question of law or fact in common;

(b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences; or

(c) for any other reason an order ought to be made.

[23] The fundamental rule relating to consolidation is that, as far as possible, all matters in controversy between the parties should be determined in one proceeding (see: Clough v. Greyhound Leasing & Financial of Canada Ltd. [1979] O.J. No. 4430 (H.C.J)).

[24] The issue underlying this application and the ongoing actions is who owes what to whom in connection with the business arrangements of the parties in which the Bolton property is involved. In my view, it would be inappropriate to sever the issue of whether Paglia is entitled to require a sale of the Bolton property to recoup a portion of his investment in the context of these disputes.

[25] For the foregoing reasons, I am of the opinion that partition and sale should not be ordered at this time. Instead, the just and appropriate relief in this application is to order that Paglia’s application be consolidated with the other ongoing actions in order that the issue of whether the Bolton property must be sold can be resolved along with the other issues relating to Paglia’s entitlement to compensation, if any, from his former business associates.

[26] I further order that the trial of these consolidated proceedings be expedited to the extent that can be reasonably achieved.

Conclusion

[27] This application is therefore ordered to be heard at the same time or immediately following the ongoing actions subject to the direction of the trial judge. This disposition is without prejudice to Paglia’s entitlement to re-launch his request for this relief should the actions not proceed with dispatch or should other circumstances so warrant.

Costs

[28] If the parties cannot agree on costs, written submissions on that subject may be delivered by the Respondents within 20 days of the date of release of this endorsement, and by the Applicant within 15 days thereafter.

STEWART J.

Date: January 23, 2014