122164 Canada Limited (New York Fries) v. C.M. Takacs Holding Corporation, 2015 ONSC 3007
COURT FILE NO.: CV-12-454607
DATE: 20150511
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
122164 CANADA LIMITED o/a NEW YORK FRIES and WARREN PRICE
Plaintiffs
– and –
C.M. TAKACS HOLDING CORPORATION, C.M. TAKACS RESTAURANTS INC., CHARLES TAKACS and DEBORAH TAKACS
Defendants
Ian A. Johncox, for the Plaintiffs
Deborah Takacs, self-represented and for the Defendants
HEARD: April 29, 2015
PERELL, J.
REASONS FOR DECISION
[1] In a defamation action, the Defendants, C.M. Takacs Holding Corporation, C.M. Takacs Restaurants Inc., Charles Takacs, and Deborah Takacs bring a motion to set aside a $525,000 default judgment granted by Justice Ellen Macdonald on November 7, 2012.
[2] The Plaintiffs are 122164 Canada Limited, a fast food franchisor that operates a chain of restaurants known as New York Fries (hereinafter referred to as “NYF”), and Warren Price, who is the Executive Vice President of NYF.
[3] On a motion to set aside a default judgment, the court considers five major factors: (1) whether the motion was brought promptly after the defendant learned of the default judgment; (2) whether the defendant has a plausible excuse for the default; (3) whether the defendant has an arguable defence on the merits; (4) the comparative potential prejudice to the defendant should the motion be dismissed and to the plaintiff should the motion be allowed; and (5) the effect of any order the court might make on the overall integrity of the administration of justice: Intact Insurance Company v. Kisel, 2015 ONCA 205, rev’g 2014 ONSC 4787.
[4] The factors are not rigid rules, and the court has to decide whether in the particular circumstances of the case, it is just to relieve a defendant from the consequences of the default: Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194. Standing alone, either the absence of prejudice or a reasonable explanation for not delivering a defence may justify setting aside a noting of default or a default judgment: Intact Insurance Company v. Kisel, supra.
[5] For the reasons set out below, I have decided to set aside the default judgment.
[6] Charles and Deborah Takacs are the principals of: (1) C.M. Takacs Holding Corporation, which was the franchisee of three NYF restaurants; and (2) C.M. Takacs Restaurants Inc., which was the franchisee of one NYF restaurant.
[7] Between 1986 and June 2010, there was a very troubled history between NYF and the Takacs, who had owned up to eight NYF franchises in the Oakville, Hamilton, and Niagara area. There were lawsuits between the parties in 1998 and 2002. On June 11, 2010, NYF terminated the Takacs’ remaining four NYF franchises.
[8] The Takacs immediately responded with a lawsuit (the Franchise Action) in London, Ontario against NYF. The Franchise Action included claims for damages and for an injunction. In the alternative, the Takacs also sought relief from forfeiture.
[9] In the Franchise Action, the Takacs and their corporations, who were represented by Siskinds LLP, brought a motion for an interlocutory injunction, but on July 6, 2012, Madam Justice Leitch dismissed the motion holding that the Takacs had not even shown a serious issue to be tried. See C.M. Takacs Holdings Corp. v. 122164 Canada Ltd. (c.o.b. New York Fries), 2010 ONSC 3817.
[10] For reasons that will become important, it is important to note that in the Franchise Action, NYF was represented by Ian A. Johncox of Mason Bennett Johncox Professional Corporation.
[11] After the unsuccessful motion for an interlocutory injunction, the Franchise Action appears to have become dormant until the spring of 2012 when on April 27, 2012, the Takacs delivered a Notice of Intention to Act in Person.
[12] On May 18, 2012, Patrick D. Flaherty of Torys LLP, on behalf of NYF, sent an e-mail message to the Takacs and their corporations demanding that they cease and desist from disseminating defamatory statements and materials about NYF. A chain of e-mail communications followed between Mr. Flaherty and the Takacs.
[13] It is important to note that it was not Mr. Johncox, who was acting for NYF in the Franchise Action, but Mr. Flaherty who was acting for NYF in demanding that the Takacs cease and desist making derogatory statements about NYF (the Defamation Action).
[14] On May 28, 2012, NYF and Mr. Price commenced the action at bar against the Takacs and their corporations. As noted in NYF’s factum, the Defamation Action is the spawn of the Franchise Action.
[15] The Defamation Action is closely linked to the Franchise Action, but in the spring of 2012, NYF was represented by two different law firms in the dispute between the parties; that is, in the Defamation Action, NYF was represented by Torys LLP and not by Mason Bennett Johncox Professional Corporation. In the Defamation Action, NYF pleads that instead of moving the Franchise Action forward, the Takacs made false and defamatory statements to damage NYF’s reputation.
[16] Meanwhile in the Franchise Action, on May 29, 2012, by order of Justice Donohue, on consent, Siskinds LLP was removed as lawyers of record for the Takacs’ corporations. It is important to note that with Siskinds LLP off the record, C.M. Takacs Holding Corporation and C.M. Takacs Restaurants could not be represented by the Takacs without leave of the court.
[17] In the Defamation Action, various efforts were made to personally serve the Takacs and their corporations, and on June 5, 2012, they were served with the Statement of Claim by e-mail. On the same day, the Takacs were inadvertently copied on a chain of e-mail messages that had passed between NYF and its counsel, Torys LLP. The message, in a very profane manner, instructed Torys LLP not to have any more e-mail communications with Mrs. Takacs, who was described in a hateful way.
[18] Meanwhile, in the Franchise Action, also on June 5, 2012, Mr. Johncox sent the Takacs an e-mail message reminding them that their corporations were required to have a lawyer to represent them or risk having their claims in the Franchise Action struck out.
[19] On June 13, 2012, the Takacs met with John Holland of Sutts Strosberg LLP who suggested that William Sasso of the firm should be consulted about taking on both the Franchise Action and the Defamation Action.
[20] In the Defamation Action, on June 19, 2012, Master Glustein, as he then was, validated the e-mail service effective as of June 5, 2012.
[21] In the Defamation Action, on June 22, 2012, Matthew Lambert of the law firm Ballachey, Moore, Beyer & Harrow, LLP faxed a letter to Mr. Flaherty. Mr. Lambert indicated that he was in the process of being retained in the Defamation Action, and he asked for an indulgence until June 29, 2012 for the delivery of the Takacs’ defence.
[22] Mr. Flaherty responded and granted that request. However, on June 29, 2012, Mr. Lambert wrote Mr. Flaherty again to advise that his firm was not being retained. Instead, on behalf of the Takacs, he enclosed a Notice of Intent to Defend.
[23] Pausing here, it should be noted that in the Defamation Action with service of the Statement of Claim effective as of June 5, 2012, subject to rule 18.02 (notice of intent to defend), the Takacs had until June 25, 2012 to deliver a Statement of Defence. Rule 18.02 (2) provides that a defendant who delivers a notice of intent to defend within the time prescribed by rule 18.01 is entitled to ten days, in addition to the time prescribed by rule 18.01, within which to deliver a statement of claim. NYF had agreed to extend the time for the delivery of the Statement of Defence to June 29, 2012, and thus with the delivery of this Notice of Intent to Defend, the Takacs and their corporation had until July 9, 2012 to deliver their Statement of Defence and Counterclaim.
[24] On July 5, 2012, Mr. Lambert sent another fax to Mr. Flaherty indicating that he was writing on behalf of the Takacs, but was not retained to act for them. After noting the still extant Franchise Action, Mr. Lambert advised that Mrs. Takacs was consulting with the Sutts Strosberg firm about retaining it to act in both the Franchise and the Defamation Actions. On the Takacs’ behalf he wrote:
Deborah and Charles are requesting a four week indulgence to deliver a Statement of Defence with respect to the above noted matter. The Takacs have advised us that they granted the same indulgence to deliver a Statement of Defence with respect to the proceeding commenced in London. As you know, in these circumstances, if you note the Defendants in Default and obtain a Default Judgment, such a Default Judgment would likely be set aside with costs ordered against your client. Please only respond to this letter, if your client will not grant the Defendants in this proceeding the indulgence requested above.
[25] On July 9, 2012, Mr. Flaherty responded by letter to Mr. Lambert, a copy of which was e-mailed to the Takacs. The letter stated:
I acknowledge receipt of your letter of July 5, 2012. We continue to believe that Deborah and Charles Takacs have had ample time to retain counsel in this matter. Under the circumstances, we are not in a position to grant the Defendants the requested four weeks to file a defence. However, as a show of continued good faith, we will grant a further indulgence until July 13, 2012. If we have not received a statement of defence by close of business on July 13, we will proceed to note the defendants in default. As for the London action referred to in your letter, we are advised that no indulgence to file a defence was asked for by our client, or granted by Deborah and Charles Takacs. Given that you are not retained, I am also copying the defendants on this letter.
[26] On July 16, 2012, Torys LLP had the Takacs and their corporations noted in default in the Defamation Action. At this juncture, it would appear that the Takacs were aware that they were at risk of being noted in default in the Defamation Action but willing to take the risk because of the likelihood that the court would set aside the default once the Takacs had retained a lawyer, whom they hoped would be Mr. Sasso of Sutts Strosberg LLP, acting for them in both actions.
[27] During the summer and into the fall of 2012, there were no more communications with the Takacs in either the Franchise Action or the Defamation Action until October 2, 2012, when, in the Franchise Action, Mr. Johncox sent an e-mail message to the Takacs asking for their consent to an amendment to NYF’s Statement of Defence and Counterclaim.
[28] The message from Mr. Johncox reminded the Takacs that their corporations remained without representation contrary to the order of Justice Donohue. Mr. Johncox asked whether the Takacs would consent to an order striking their claims and defences in the Franchise Action. No mention is made of the Defamation Action, which, of course, was being handled by another law firm.
[29] On October 12, 2012, the Takacs responded that Mr. Johncox’s message of October 2, 2012 had been forwarded to the Sutts Strosberg firm for reply. The same day, Mr. Johncox responded that he had not heard from Sutts Strosberg despite his own correspondence to the firm. He asked the Takacs for an address for service.
[30] Mr. Johncox sent similar e-mail messages on October 19, 2012 and October 22, 2012 and repeated the request that the Takacs consent to the amendment to NYF’s Statement of Defence and Counterclaim in the Franchise Action. Mr. Johncox said nothing about the Defamation Action for which he was not acting for NYF.
[31] In the Franchise Action, on October 22, 2012, Mrs. Takacs responded with a temporizing e-mail message asking for copies of the correspondence that Mr. Johncox had sent to the Sutts Strosberg firm.
[32] Two days later, on October 24, 2012, NYF brought a motion in Toronto for a default judgment in the Defamation Action. Justice Ellen Macdonald reserved judgment.
[33] Meanwhile, on October 24 and 25, 2012, Mrs. Takacs sent e-mail messages to Mr. Johncox advising him that Mr. Sasso was not available and they were seeking a referral to another law firm.
[34] Between October 25 and 28, 2012, there was an exchange of very lengthy e-mail messages between the Takacs and Mr. Johncox about the Franchise Action, and on October 28, 2012, Mr. Johncox sent an e-mail message to the Takacs reiterating his request for an address for service. Throughout, Mr. Johncox said nothing about the Defamation Action.
[35] On November 13, 2012, in the Franchise Action, the Takacs brought a motion returnable in London for an order granting them leave to represent their corporations. On November 14, 2012, they brought a motion in Brantford to represent the corporations in the Defamation Action. They were oblivious to the fact that a default judgment in the Defamation Action was pending in Toronto. Why they brought a motion in Brantford is unexplained.
[36] On November 7, 2012, Justice Macdonald released her default judgment in the Defamation Action. She ordered that the Defendants pay the Plaintiffs $425,000 in general damages and $75,000 in punitive damages and $25,000 in costs with interest at 3.0% per annum. She enjoined the Defendants from disseminating any statements or communications concerning the Plaintiffs, except in court documents or in open court in the Franchise Action. See 122164 Canada Ltd. (c.o.b. New York Fries) v. C.M. Takacs Holdings Corp., 2012 ONSC 6338.
[37] On November 14, 2012, Mr. Justice Leach dismissed the Takacs’ motion to represent the corporations in the Franchise Action. See C.M. Takacs Corporation v. 122164 Canada Ltd., 2012 ONSC 6456.
[38] It seems that Mr. Johncox, NYF’s counsel in the Franchise Action, advised the Takacs about the default judgment in the Defamation Action. He told them that if they intended to move to set aside the default judgment, their corporations would need to have counsel. Further, he told them that if they intended to set aside the default judgment, once they had ascertained available motion dates from the court, they should consult with him to confirm his availability.
[39] After November 2012, Mr. Johncox acted for NYF in both the Franchise Action and in the Defamation Action.
[40] On December 18, 2012, the Takacs and their corporations brought a motion to have the default judgment set aside. They sought to have the default judgment set aside with the condition that they retain counsel for themselves and their corporations and file a Statement of Defence and Counterclaim within 20 days.
[41] In then took almost two-and-a-half years for the Takacs’ motion to set aside the default judgment in the Defamation Action to come before the court.
[42] For the purposes of this motion, I conclude that the delay in getting the motion before the court is a factor that weighs strongly against the Takacs who displayed some of the bad tendencies of some self-represented litigants who either inadvertently or advertently abuse the administration of justice while blaming their opponents or their opponent’s lawyers for what they perceive as unfair treatment and a denial of access to justice but what is in truth a misunderstanding about the adversarial system of justice. The Takacs, for instance, do not understand such matters as the difference between statements in a pleading, which are not made under oath, and statements in an affidavit, which are made under oath. They do not understand the operation of the Rules of Civil Procedure. They do not understand the nature of “without prejudice” correspondence. They do not understand the law of evidence. They do not understand how the Rules of Professional Conduct govern the conduct and responsibilities of their opponent’s lawyer and they do not understand that the complaints procedure of the Law Society of Upper Canada is not a means to enforce court orders or settlement agreements.
[43] That said, some of the pathetic history of the progress of this motion does not rest only with the Takacs but can be explained, in part, by institutional delays and by the shared uncooperativeness of the participants, who have provoked one another to the point of a visceral hatred.
[44] For the purposes of these Reasons for Decision I see no useful purpose in setting out the details of the procedural history that led me to the conclusion that the delay in getting this motion before the court weighs against the Takacs, because, in my opinion, it would be unjust in the circumstances of this case to allow what has occurred or not occurred in the last two-and-a-half years to be the reason for not setting aside the default judgment.
[45] Put differently, if the delay had not occurred and I had heard the motion in 2013 and not in 2015, the other factors and the overall interests of justice weigh in favour of setting aside the default judgment.
[46] The Takacs’ motion to set aside the default judgment was brought promptly after the default judgment was granted.
[47] In my opinion, the Takacs had a plausible excuse for being noted in default and an even more plausible excuse for allowing a default judgment to be taken out against them. I believe that while perhaps they should not have been surprised at being noted in default, they were genuinely surprised by the alacrity in NYF’s obtaining a default judgment in the Defamation Action while at the same time corresponding with them and meeting with them in court about moving the connected Franchise Action forward.
[48] While technically entitled to do so, in the Defamation Action, NYF took advantage of the procedural predicament in which the Takacs found themselves, and NYF took advantage of the confusion caused by it having different lawyers of record in the Defamation Action and in the older Franchise Action.
[49] The Takacs did have a predicament. They were required to defend a Defamation Action factually connected to the Franchise Action and both actions included their corporations as parties that required a lawyer of record or the court’s permission to act for them. In the Franchise Action, Mr. Johncox had made it clear that the Takacs’ corporations needed legal representation to advance their claim.
[50] In these circumstances, it was both sensible and necessary for the Takacs to retain a law firm to act in both actions. I believe that from June to the end of October 2012, the Takacs were genuinely trying to find a lawyer to act for them and for their corporations in both actions. Mr. Flaherty was receiving correspondence that confirmed that these efforts to retain lawyers were being made by the Takacs at this crucial time at the outset of the Defamation Action.
[51] I believe that but for the visceral hatred that NYF had for the Takacs and for Mrs. Takacs, in particular, it would not have given instructions to Mr. Flaherty to hold strictly to the time requirements of the Rules of Civil Procedure.
[52] NYF was taking an advantage that it knew or ought to have known might not be sustained by a court that much prefers actions to be decided on their merits. In any event, I find that the Takacs have a plausible explanation and an excuse for going into default and that they moved promptly to have the default judgment set aside.
[53] Given that the Takacs did not deliver a draft Statement of Defence, it is difficult to comment about whether they have a defence for liability for defamation, but there is enough in the material to suggest that they may have some defences to some of the alleged libels or slanders, and the Takacs certainly may have arguments to challenge causation of harm and the assessment of over $500,000 in damages.
[54] Had the motion to set aside the default judgment been heard in 2013, NYF would have suffered no prejudice in proving its case on the merits if the judgment was set aside. That situation remains true to this day.
[55] The absence of any of substantive, evidentiary, or procedural prejudice weighs heavily in favour of setting aside the default judgment.
[56] Had the motion to set aside the default judgment been heard in 2013, the overall integrity of the administration of justice would not have been determinative factor and, as I explained above, what has happened in the last two-and-a-half years does not persuade me to uphold the default judgment.
[57] Subject to the enduring problem of the Takacs retaining a lawyer to act for them and their corporations, the Franchise Action remains before the court to be decided on the merits, and, in my opinion, the connected Defamation Action should be put on the same procedural footing.
[58] For the above reasons, I set aside the default judgment subject to the Takacs retaining counsel for themselves and their corporations and delivering a Statement of Defence and Counterclaim within 60 days.
[59] If the parties cannot agree about the matter of costs of this motion, they may make submissions in writing beginning with NYF’s costs submissions within 20 days after the release of these Reasons for Decision followed by the Takacs’ submissions within a further 20 days.
Perell, J.
Released: May 11, 2015
122164 Canada Limited (New York Fries) v. C.M. Takacs Holding Corporation, 2015 ONSC 3007
COURT FILE NO.: CV-12-454607
DATE: 20150511
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
122164 CANADA LIMITED o/a NEW YORK FRIES and WARREN PRICE
Plaintiffs
– and –
C.M. TAKACS HOLDING CORPORATION, C.M. TAKACS RESTAURANTS INC., CHARLES TAKACS and DEBORAH TAKACKS
Defendants
REASONS FOR DECISION
PERELL J.
Released: May 11, 2015