ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-08-CV349056
DATE: 20140918

BETWEEN:

Paul Singer and 1065783 Ontario Inc.
Plaintiffs

– and –

Lipman Zener Waxman LLP, Allan L. Lipman, Anthony J. O'Brien and Robert Riteman
Defendants

Arnold H. Zweig, for the Plaintiffs

Michael R. Kestenberg and Thomas M. Slahta, for the Defendants

HEARD: February 3-7, 10-14, 17-20, 2014

carole j. Brown J.

REASONS FOR JUDGMENT

[1] The plaintiffs, Paul Singer (“the plaintiff” or “Singer”) and 1065783 Ontario Inc.(“the corporate plaintiff" or “106”), bring this solicitor's negligence action against the defendants, Lipman, Zener, Waxman LLP (“the Firm”), Allan L. Lipman (“Lipman”), Anthony J. O’Brien (“O’Brien”) and Robert Riteman (“Riteman”), their former lawyers and law firm retained regarding a partnership dispute.

[2] The plaintiffs' Statement of Claim sought damages in the amount of $10 million for solicitor negligence involving the partnership dispute with the plaintiffs' partner, Stephen Applebaum ("Applebaum"), plus out-of-pocket expenses, including costs of and incidental to the motion before Peppal J. The action alleges, inter alia, negligence on the parts of all of the defendants, and acting without obtaining the instructions or authorization of the plaintiffs, to their detriment.

[3] The plaintiff retained the defendant firm, Lipman, Zener, Waxman LLP, in March-April 2004. The individual defendants, Allan L. Lipman, Anthony J. O'Brien and Robert Riteman worked, at various stages throughout the retainer, on behalf of Singer on the partnership dispute between Singer and Applebaum. Robert Riteman was ultimately released from the action.

[4] It is the position of the plaintiffs that the defendants failed to protect their ownership interest in the partnership dispute, that the defendants forced the plaintiffs into a sale of their partnership interest which they did not want to sell, into agreeing to a valuation date to which the plaintiffs did not agree, that the defendants acted without their authorization or instruction, failed to keep them properly advised of proceedings throughout and negligently counselled them to go to court to seek to void the mediated agreement, knowing such a motion would fail.

[5] It is the position of the defendants that the plaintiffs were disappointed sellers who initially intended to sell their interest in the partnership business to Applebaum, and thereafter believed that former partner, Stephen Applebaum, had cheated the plaintiffs out of the fair value of their interest in the wholesale and retail shoe business known as Sherson. The plaintiff, Singer, asserts that he was cheated as the defendants had caused him to enter into an agreement to sell his company shares in Sherson to Applebaum that he did not authorize.

[6] For the reasons as set forth herein, I dismiss the plaintiffs' action.

The Facts

[7] The plaintiff, Paul Singer, is a principal of the corporate plaintiff, 106573 Ontario Inc, along with his brothers, Stephen, Murray, Paul and David. At the material times, the corporate plaintiff held a 40% interest in 879750 Ontario Inc. ("879"), a holding company which owned the Sherson Group Inc., engaged in the business of selling shoes and accessories through various licensing agreements. The other 60% of 879 was owned by Stephen Applebaum (“Applebaum”), who was the President, Chief Executive Officer and sole director of Sherson. The Singer family had provided financing as regards Sherson.

[8] As recorded in the corporate records, Applebaum, directly or indirectly through his company, Applebaum Holdings, held a 60% beneficial ownership interest in Sherson. He was in charge of Sherson's day-to-day operations as its President. Indeed, pursuant to Sherson's license with a key licensor, Nine West, Applebaum was required to be the principal of Sherson. The plaintiff's family had arranged financial support for Sherson from time to time and provided security to Sherson in times of financial difficulty. Singer family assets were pledged to secure several million dollars of Sherson's indebtedness. No member of the Singer family was an officer or director of Sherson; nor was any Singer family member involved in Sherson's day-to-day operations. Thus, the Singer family assets, pledged as security for Sherson's debt, were placed at risk.

[9] In March of 2004, Applebaum proposed to purchase the plaintiff corporation’s recorded 40% interest in Sherson for $1 million and payment of the indebtedness owing directly or indirectly to the Singer family. The plaintiff believed Sherson to be worth far more. The plaintiff instructed the defendant firm to make a counter proposal to seek to formalize what the plaintiff believed to be terms of an oral agreement between himself and Applebaum, which included entitlement by the plaintiffs to 50% of Sherson's profits for so long as the plaintiff corporation owned shares in Sherson. On April 14, 2004, correspondence from the defendant firm to Applebaum's lawyer’s firm confirmed an agreement between Singer and Applebaum as regards, inter alia, sale of the plaintiffs' interest in Sherson to Applebaum, and confirmed the 60/40 equity interest as well as the fact that annual profits would be distributed 50/50 for as long as indebtedness remained due and owing to Navarro. This was rejected by Applebaum who denied any such agreement to share equally in Sherson's profits after repayment of certain loans.

[10] It was proposed that if negotiations for a buyout of his corporation’s interests could not be successfully concluded by October 31, 2004, the matter should be submitted to arbitration to determine Sherson's market value as a going concern. Singer proposed that no minority discount be applied to determine the value of the plaintiff corporation's interest in Sherson. Throughout March and April, 2004, and indeed until October of 2005, the plaintiff and Applebaum continued to have discussions between themselves without the involvement of their retained legal counsel. They agreed to take steps to negotiate a buyout of the plaintiff corporation’s interest in Sherson. To this end, Neil Maisel (“Maisel”) was retained in May of 2004 to prepare draft valuation schedules respecting Sherson. In December of 2004, Maisel provided a fair market valuation as at September 30, 2004 of $14 million. As at April 2005, Sherson released financial projections for the year ended January 28, 2006 projected to be approximately $4.2 million after taxes. A written proposal was presented from Sherson in June of 2005 for purchase of the plaintiff corporation’s shares in the amount of $1.5 million. Subsequently, in July 2005, Sherson revised its financial forecast, projecting a reduced profit of $4 million due to financial difficulties. No agreement as to a buyout was reached and relations deteriorated thereafter.

[11] The parties discussed mediation but could not agree upon preconditions imposed by the plaintiffs. On October 27, 2005, Applebaum advised in writing that, as at December 31, 2005, payments by Sherson to the plaintiffs in the amount of approximately $200,000 per year would cease. Oppression proceedings ensued.

[12] The parties attended mediation before George Adams in February 2006. At the mediation, held on February 15, 2006, a binding agreement was concluded, with both parties signing the agreement which called for a buyout of the plaintiffs' interest in Sherson based on fair market value without minority discount calculated as at the last audited fiscal year end, January 31, 2006. It was further agreed that the late Hon. Sydney Robins, former Justice of the Ontario Superior Court of Justice and the Ontario Court of Appeal, would determine, by way of binding arbitration, fair market value and any other matters which the parties could not agree upon. Further, the assets pledged as security by the plaintiffs to secure Sherson's indebtedness would be released on closing.

[13] From the date of the mediation through 2006, the parties proceeded toward arbitration while, at the same time, attempting to narrow the issues for arbitration (what Riteman, in his testimony, called the two "parallel processes"). They were unable to narrow issues or even to agree upon a list of issues to be determined by the arbitrator and, accordingly, each party submitted their own separate list of issues.

[14] Thereafter, in June of 2006, the plaintiff and Neil Maisel received Sherson's audited financial statements indicating a valuation well below the projected $4 million. These financial results received in June 2006 differed from projections which had been presented by Sherson's accountant in July 2005, well before the mediation. On June 9, at 2006, the plaintiff e-mailed Maisel and inquired "Do you think we are better off scrapping the agreement if we can?”.

[15] Thereafter, the plaintiff advised the firm that there would be a change in direction and, from that time forward, there would be a focus on getting out of the mediation agreement. His instruction to the firm was to do whatever possible to get out of the deal. He had concluded that he wanted to get out of the deal and e-mailed the defendants stating: "my vision for lack of a better word is that we kill this deal the best way we can and start over…", and concluded, "this DEAL MUST DIE". The plaintiff wished to resile from the February 15, 2006 mediated agreement and to that end, instructed the firm to bring a motion before the court in order to invalidate the agreement. Despite advice from O'Brien that such a motion brought to reverse the mediated agreement would be unsuccessful, the plaintiff instructed O'Brien to proceed with a motion. Indeed, in response to O'Brien's recommendation not to proceed, Singer advised that it was worth the risk and that he wanted to take a shot at the motion.

[16] This motion was ultimately unsuccessful. At the motion on May 16, 2007, Peppal J. determined that all of the issues of concern to the plaintiff could be raised before the selected arbitrator, the late Hon. Sydney Robins.

[17] Thereafter, the plaintiffs terminated the defendants’ retainer and retained new counsel, Arnold Zweig, to conduct the arbitration. Mr. Zweig continues to represent them in this action.

[18] The plaintiff admitted that Mr. Zweig raised all issues at the arbitration that he wanted to have raised. It is of note that, at the arbitration, the plaintiff filed a valuation report prepared by Maisel based on the valuation date of January 31, 2006. It was only $700,000 less than the April 2004 draft valuation, with which the plaintiff had been satisfied. However, at the arbitration itself, Maisel admitted that he had made mistakes in his valuation, which resulted in a fair market value as at January 31, 2006 which was less than the fair market value determined by Applebaum's expert. The evidence indicates that, indeed, it was the plaintiff, rather than the defendants, who was in contact with Maisel respecting the valuation of the Sherson interest. As argued by counsel for the defendants, no action was ever brought by the plaintiff as again Maisel.

[19] At the arbitration, the parties, through their respective counsel, agreed in writing to the two issues to be determined by the arbitrator, the late Hon. Sydney Robins. These included the profit issue, namely whether there was entitlement with respect to the equal apportionment of profits between Applebaum and the plaintiffs, although the shares were held 60/40, and the value of the plaintiffs' shares as at January 31, 2006. As regards the profit issue, the arbitrator preferred the evidence of Applebaum over that of Singer based on the agreement of April 14, 2004 executed by him which was directly contradictory to his evidence. The late Hon. Sydney Robins found that the agreement of April 14, 2004 between the parties was clear and that profits were to be distributed 50/50 for so long as indebtedness remained due and owing to Navarro. He found that the obligation to divide profits equally came to an end on April 15, 2005, the date upon which the Navarro loans were repaid. Thus, the Singer family's entitlement to more than 50% of profits ended on that date. Secondly, as regards the valuation issue, he found, based on the expert valuator’s evidence, that the Singer family shareholder loans amounted to $5,209,888 as at January 31, 2006. The arbitrator found that sample sales were not a factor to be taken into account in determining the value of Sherson. He accepted the expert report proffered by Applebaum and found the Singer family equity interest to be $2,750,000. The plaintiffs' valuator, Maisel, admitted that there were errors in his valuation analysis which yielded a fair market value less than that determined by Applebaum's expert.

... (continues exactly as in the judgment)

Carole J. Brown J.

Released: September 18, 2014

COURT FILE NO.: CV-08-CV349056
DATE: 20140918

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Singer
Plaintiff

– and –

Lipman Zener Waxman LLP
Defendant

REASONS FOR JUDGMENT

Carole J. Brown J.

Released: September 18, 2014