1186708 Ontario Inc. v. Attara Developments Limited, 2014 ONSC 4189

COURT FILE NO.: CV-09-8023-00CL

DATE: 2014-07-22

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1186708 Ontario Inc., 746190 Ontario Limited and 746191 Ontario Limited, Applicants

AND:

Attara Developments Limited et al., Respondents

BEFORE: Regional Senior Justice Morawetz

COUNSEL: J. Rosekat, for A. John Page & Associates Inc., Court Appointed Sales Officer

Bonnie Roberts Jones and Joseph Groia, for the Applicants

Theodor Kerzner, Q.C., for Mintz-Gerstein Interests (except Applicants)

HEARD: May 27, 2014

ENDORSEMENT

[1] This Endorsement addresses three issues:

1. The General Reserve;
2. Allocation of Sales Officer’s Costs; and
3. The $7.5 million Settlement Liquidity Holdback (the “SLH”).

1. General Reserve

[2] It became apparent during argument that the position of the parties could be affected by upcoming scheduled closings of the Attara property and the Roselawn property. I indicated that I would rule on this issue after the scheduled closing dates and, if the properties closed, the Sales Officer could provide an update report with its recommendations as to an appropriate distribution. The Sales Officer has since reported that the sale transactions did close on June 2, 2014.

[3] The Sales Officer prepared a revised worksheet indicating the amount that the Sales Officer felt could be distributed at this time. This worksheet was attached to the Third Supplement to the Tenth Report of the Sales Officer dated June 3, 2014.

[4] The Sales Officer proposed reducing the Environmental Work Reserve to $700,000, the Fee Reserve to $500,000 and the Contingency to $500,000 so that in total the quantum of general reserves would be reduced from $3,750,000 to $1,700,000.

[5] In my view, it is appropriate to accept the recommendations of the Sales Officer. The recommended distributions are to be made in accordance with the June 2014 Distribution Worksheet.

2. Allocation of Sales Officer’s Costs

[6] As a result of the closing of the Attara property and the Roselawn property, the Chelsandy property remains the only property to be sold. The Sales Officer’s mandate is, accordingly, reduced in scope such that it seems reasonable and appropriate that all of the Sales Officer’s costs incurred on or after June 2, 2014, are to be allocated to the Chelsandy property or the proceeds of sale of the Chelsandy property.

3. $7.5 Million Settlement Liquidity Holdback

[7] With respect to the SLH, the Mintz-Gerstein Interests take the position that the SLH should be eliminated or reduced. The Applicants take the position it should be maintained. The Sales Officer takes no position.

[8] The SLH was established by Order dated August 8, 2013. Paragraph 36 of the reasons read as follows:

[36] Having considered the competing positions, it seems to me that the Sales Officer should concentrate on its mandate of selling the remaining buildings, without getting immersed in management decisions. With respect to the distribution, I accept the submissions put forth by Mr. Kerzner, with one significant modification. The process should be structured so as to lessen the involvement of the Sales Officer. I accept the recommendation of Mr. Kerzner that a case conference be convened to determine how the proceedings will go forward. Further, there is no need, in my view, to restructure the management of day-to-day operations at this time. Day-to-day operations should continue as they have in the past. To the extent that the concerns of Sharon Gerstein are borne out, she has her remedies in the ongoing proceedings. The modification, referenced above, is that a meaningful amount is to be held back from the distribution so as to ensure there is liquidity available to deal with any adjustments after the accounting has been completed. I fix this amount at $7,500,000 which represents approximately 5% of net proceeds. A holdback of this type should also provide the parties with an incentive to develop an aggressive timetable to deal with the remaining litigation.

[9] Mr. Kerzner submits that no evidence was filed on distribution motion of August 2013 suggesting that any “security” for any recovery by the Applicants was needed and no such purpose was intended to be served by the establishment of the SLH. Mr. Kerzner submits that, given the sizeable amounts distributed to date to the parties, “no one is without funds to either pay for any such recovery, ultimate accounting adjustments if any, or costs by and to whomever payable”.

[10] Mr. Kerzner further submits that at the time of the August 8, 2013 order, the court no doubt thought that settlement was a realistic prospect. However, Mr. Kerzner submits that it is clear on the evidence that the prospects of settlement are slim and that the maintenance of any type of holdback does not serve any real purpose in attempting to move the litigation forward.

[11] To support his position, Mr. Kerzner made reference to his Aide Memoire and, in particular certain comments of Mr. Mitchell Gerstein as set out at paragraph 8, which, in turn, are based on the affidavit of Mr. Ira Gerstein, sworn March 27, 2014. In my view, there is nothing to be gained by reciting the particulars of the affidavit other than to observe that a bitter family dispute has been ongoing for 30 years.

[12] Mr. Groia submits that the test under Rule 56 for the variance of an order has not been met and that there is a need to maintain the SLH so as to provide a degree of encouragement to the parties to get on with the lawsuit and that the SLH serves a purpose in encouraging the parties to move forward.

[13] Mr. Mitchell Gerstein, in his affidavit of May 22, 2014, states that the allegations of Mr. Ira Gerstein that he [Mitchell] does not intend to settle the action are incorrect and without any basis in fact. Mr. Mitchell Gerstein goes on to state that the reason the lawsuit has not moved forward is that there has been no progress made between the parties with respect to production of records to date.

[14] Mr. Kerzner takes the position that no regard should be had to the affidavit of Mr. Mitchell Gerstein due to the lateness of its preparation.

[15] The SLH was established to ensure there was liquidity available to deal with any adjustments after the accounting has been completed. The accounting has not been completed. There remains, in my view, a good reason to maintain the SLH. The history of this matter and the animosity that exists between the parties is such that it remains desirable to have a holdback available so that the adjustments can be addressed without the requirement of one party having to seek payment from the other party. In this respect, any steps that can be taken to lessen the interaction between these parties is desirable. However, it seems to me that the SLH should not be maintained indefinitely. The SLH is intended to “provide the parties with an incentive to develop an aggressive timetable to deal with the remaining litigation”. This has not happened.

[16] It is time that the parties become serious about moving the litigation forward. Meaningful and measureable steps are to be taken in the next 90 days to get this litigation moving forward. If, after that period, either party is of a view that meaningful and measurable steps have not been taken to move the litigation forward, further directions can be sought to eliminate or reduce the SLH.

[17] In arriving at my conclusion, the content of the affidavit of Mitchell Gerstein did not impact my decision.

[18] Neither the Applicants nor the Mintz-Gerstein Interests have achieved a degree of success with respect to this aspect of the motion and no costs are payable as between them.

Morawetz, R.S.J.

Date: July 22, 2014