Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Lino Di Nardo and Marc Sherkin, Plaintiffs
AND:
Russell Webb, 2316503 Ontario Inc., Shield Consulting Inc. (DBA Complete Healthcare Solutions), Stephen Glazer, 1789668 Ontario Limited, 18022899 Ontario Inc. (DBA Hospital Alliance Group), 1719503 Ontario Ltd. (DBA Complete Healthcare Solutions Sudbury), 2328268 Ontario Inc., 2269665 Ontario Ltd. (DBA Complete Healthcare Solutions Espanola) and 2316209 Ontario Inc. and John Doe Corp. #1 and John Doe Corp. #2 and Complete Healthcare Solutions Inc., Defendants
AND B E T W E E N:
Russell Webb and Stephen Glazer, Plaintiffs by Counterclaim
AND:
Lino Di Nardo, Marc Sherkin, and Shield Consulting Inc., Defendants by Counterclaim
BEFORE: L. A. Pattillo J.
COUNSEL: Jonathan Mesiano-Crookston, for the Plaintiffs/Moving Parties
Scott R. Fairley, for the Defendants, 2328268 Ontario Inc., 2316209 Ontario Inc.; Complete Healthcare Solutions Ontario Inc.; Russell Webb and Stephen Glazer
HEARD: November 14, 2014
ENDORSEMENT
Introduction
1This matter arises out of the termination of a six-year business relationship between the plaintiff Lino DiNardo (“DiNardo”) and the defendant Russell Webb (“Webb”) in early 2012.
2DiNardo brings this motion for summary judgment seeking a declaration that he and Webb entered into a binding agreement of purchase and sale on or about September 2012, with respect to four companies that he and Webb were shareholders in. In addition, DiNardo seeks other ancillary relief relating to Webb and the businesses.
3Webb denies that a binding agreement concerning the sale of the businesses was ever reached with DiNardo and takes issue with the ancillary relief sought. Further, Webb brings a cross-motion seeking a number of orders relating to DiNardo’s involvement in the businesses and production of financial and other information.
4For the reasons that follow, I dismiss both the motion and the cross-motion. While it is clear from the evidence that DiNardo and Webb agreed to end their business partnership in early 2012, in my view they did not reach a binding agreement on all of the essential terms of how that was to be accomplished in September 2012 or thereafter. Further, the final written agreement was subject to review by Webb’s lawyer which never happened. In light of the fact that there is no binding agreement as to the terms of separation, the ancillary orders requested by DiNardo as well as those sought by Webb in the counterclaim are premature and are best dealt with at trial.
5In light of the fact that I have concluded that DiNardo’s summary judgment motion should be dismissed, I remained seized of the action. As a result, I intend to provide just a brief overview of the facts, most of which I consider to be not contentious.
Background
6DiNardo and Webb met each other while working in the respiratory products business in the healthcare industry. They were each engaged in the supply and service of continuous positive airway pressure (“CPAP”) equipment and oxygen equipment. In 2006, they agreed to start a new business together in the CPAP field.
7On September 5, 2006, DiNardo and Webb incorporated a company called Finest Respiratory Home Health Inc., which subsequently changed its name to the defendant Shield Consulting Inc. (“Shield”). DiNardo and Webb are the directors and 50% shareholders of Shield.
8Shield operates under the name Complete Healthcare Solutions. It initially carried on the business of providing CPAP equipment supply and services. In the first year of business, Shield also began providing oxygen equipment supply and services in the Greater Toronto Area. Shield was successful financially. Both DiNardo and Webb participated in the business. They shared the profits equally.
9Shield subsequently opened CPAP and oxygen locations in Carlton Place and Alliston, Ontario.
10In 2009, DiNardo and Webb through Shield, opened a Sudbury location of Complete Healthcare Solutions with Jean St. Aubin (“St. Aubin”) to provide oxygen and CPAP services and equipment in Sudbury and area. They incorporated the defendant 1719503 Ontario Ltd. (“171”), which operates the business. Shield owns 25% of 171 and St. Aubin owns the remaining 75%. The business has been successful.
11In 2010, DiNardo and Webb incorporated the defendant 1802299 Ontario Inc. (“180”) which operates and manages hospital-based sleep labs, providing revenue for hospitals and ensuring CPAP business. 180 carries on business as the Hospital Alliance Group. 180 is owned equally by DiNardo, Webb, the plaintiff Marc Sherkin (“Sherkin”) and the defendant Stephen Glazer (“Glazer”). 180 operates in both Ontario and Quebec.
12Also in 2010, DiNardo, Webb and St. Aubin incorporated the defendant 2269665 Ontario Ltd. (“226”), which opened a CPAP location in Espanola, Ontario and carries on business as Complete Healthcare Solutions Espanola. 226 is owned one-third each by DiNardo, Webb and St. Aubin.
13Shield also has a 50% interest in a CPAP and oxygen location in Drummondville, Quebec which operates under the name Clinique Solutions Sante Complete.
14In January 2012, DiNardo advised Webb that it was time to go their separate ways. Webb says that DiNardo told him he was out of the company without any prior indication. Webb agrees, however, that the relationship between them had broken down.
15In January 2012, DiNardo says that he and Webb agreed that Webb would take the CPAP business and he would retain the oxygen business. In order to carry out such a split, they agreed to divide the businesses. Further, and because they could not afford to pay fair market value for the businesses, DiNardo established values for each of the businesses based on the financial statements. The values DiNardo assigned were not fair market value but were “equitable” and intended to minimize taxes.
16The framework of the split as proposed by DiNardo was:
a) DiNardo would purchase Webb’s 50% interest in Shield for $260,000;
b) DiNardo would purchase Webb’s 25% interest in 180 for $12,500;
c) Webb would purchase DiNardo’s 33% interest in 226 for $40,500; and
d) Webb would purchase Shield’s 25% interest in 171 for $225,000.
17There were numerous ongoing discussions between Webb and DiNardo concerning the agreement following the January discussions. While Webb agrees that there were extended negotiations after DiNardo presented his initial proposal to divide the companies, he says no final agreement was ever reached.
18Following the January 2012 discussions, DiNardo excluded Webb from Shield’s business. Notwithstanding that Webb was the President of Shield, DiNardo took over the role of President. He reduced Webb’s salary from Shield and on June 1, 2012 cut it off completely.
19In May, 2012, DiNardo retained Rudy Bianchi (“Bianchi”) on behalf of both he and Webb to draft the agreement between them. DiNardo and Webb each agreed to pay half of Bianchi’s fee. In addition, DiNardo got John Dutscheck (“Dutscheck”), an accountant who had worked for both Shield and 180, to act as a mediator between he and Webb to finalize an agreement.
20In July 2012, Bianchi forwarded to both DiNardo and Webb draft copies of four share purchase agreements with attached forms of indemnities and releases. The agreements related to each of the above noted four share purchase transactions.
21The parties continued to negotiate the terms of their separation with the help of Dutscheck.
22On September 25, 2012, DiNardo, Webb, Bianchi and Dutscheck met to go over and discuss the July draft agreements. DiNardo says that they went over the agreements, line by line and all was agreed to.
23On October 10, 2012, Bianchi sent out further drafts of the agreements incorporating further amendments that were discussed at the September 25th meeting. No further meeting was scheduled to sign the October agreements and close the transactions.
Position of the Parties
24DiNardo submits that the draft agreements discussed and agreed to at the September 25, 2012 meeting constitute a binding agreement between the parties which this court should enforce.
25Webb submits that what occurred was an unsuccessful negotiation which did not amount to a binding agreement.
Are the September Agreements Binding Agreements?
26Based on the evidence before me, I am unable to conclude that DiNardo and Webb reached a binding agreement at their meeting on September 25, 2012 for a number of reasons.
27First, I do not consider that all of the essential terms had been agreed to. In an email from Bianchi to Webb on January 8, 2013, more than three months after DiNardo says that they had reached a binding agreement, Bianchi suggests to Webb that in order to get “this matter back on track and close this transaction”, that certain financial adjustments be agreed upon between he and DiNardo and that they have to agree on the area of non-competition between them. Both of those items were and remain material terms of the separation.
28Bianchi was jointly retained to prepare the agreements. From his emails during his retainer, it is clear he was alive to issues of disagreement between DiNardo and Webb in respect of the separation. There is no evidence from Bianchi that the parties reached a binding agreement.
29Dutscheck was the “mediator” as DiNardo described him. He was involved in all of the discussions after May 2012 and was present at the September 25th meeting where DiNardo says the binding agreement was reached. In his affidavit filed by DiNardo on the motion, Dutscheck’s only statement concerning the negotiations and agreement is as follows:
- I can also state that, throughout this process, culminating in the meeting on September 26, 2012, which was the last meeting attended by all parties, that the two parties seemed intent on carrying out a buy-sell agreement of some fashion.
Dutscheck’s statement is far from establishing that the parties had reached a binding agreement concerning the terms of their separation.
30DiNardo admitted in his cross-examination that the joint retainer of Bianchi was done on the basis that he would draft the agreement but before the final agreement was signed, Webb would obtain independent legal advice from a lawyer. That requirement was built into Bianchi’s draft agreements. There is no evidence that Webb ever retained a lawyer or had a lawyer representing him during the negotiations.
31As I have noted, the evidence of DiNardo and Webb is directly opposite in terms of whether an agreement was reached between them. DiNardo said on his cross-examination that at the September meeting, “We all agreed in that room, all of us said, yes, we agree to the numbers, we agree to the terms, we agree to everything. I thought we were leaving there signing that agreement that day.”
32Webb’s evidence is that there was never any agreement as neither party signed the various agreements. DiNardo submits that Webb’s evidence is not credible as he has effectively been operating in accordance with the agreement since June 2012 or earlier.
33Webb agrees that he and DiNardo have been essentially operating as separate divisions of Shield since June 1, 2012, which he says he has done out of necessity as he was excluded from Shield by DiNardo.
34In light of the evidence which I have referred to concerning whether the September agreements are binding and having regard to the issues remaining between the parties, it is neither necessary nor appropriate for me to comment on the credibility of either DiNardo or Webb on this motion. Suffice it to say that the evidence raises credibility issues in respect of each of them.
35Both parties rely on Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 1991 2734 (ON CA), 53 OAC 314, O.J. No. 495 (C.A.), which considered the issue of whether an oral contract was binding and enforceable or subject to subsequent agreement on all terms and conditions to be contained in a written agreement.
36Robins J.A., speaking for the court, stated that when parties agree on all of the essential terms to be incorporated into a formal document with the intention that their agreement shall thereupon become binding, all the requisites for a contract have been met. The fact that a formal written agreement must then be prepared and signed does not alter the contract.
37The learned judge then went on to say at p. 13:
However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon; or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract; or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their agreement, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the ‘contract to make a contract’ is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself.
38In this case, as I have found, not only was the alleged September 25th contract incomplete in that essential provisions had not agreed upon but it was also the intention of the parties, as stated by DiNardo, that the written agreement was subject to review by Webb’s lawyer before being finalized which did not happen.
39For the above reasons, therefore, I am not prepared to find that DiNardo and Webb concluded a binding agreement in September 2012 with respect to the purchase and sale of the four companies. In my view, while they agreed to terminate their business relationship, all of the essential details concerning how that was to be done were never agreed upon.
40Accordingly, DiNardo’s summary judgment motion is dismissed. In the absence of a binding agreement as to the terms of the separation, the action must proceed to trial for such a determination.
Further Relief
41Both DiNardo and Webb seek orders from the court relating to the governance of both Shield and 180, and to certain of their actions after September 2012 arising out of their failure to reach an agreement concerning the termination of their business relationship. While the pre-existing corporate arrangements with respect to Shield and 180 remain in place, both DiNardo and Webb have operated, as Webb says, since at least June 1, 2012 as separate divisions of Shield.
42DiNardo seeks the following further orders:
That Webb be removed as an officer and director of Shield pending trial;
That Webb be removed as an officer and director and Glazer be removed as a director of 180;
Partial summary judgment requiring Webb to reimburse Shield for the monies paid by it to the Humber River Regional Hospital on his behalf;
Approval by the Court of DiNardo and Sherkin’s salaries as day to day operators and managers of 180.
43Webb, in turn, seeks the following orders:
That DiNardo be removed as an officer and director of Shield;
That Sherkin be removed as an officer, director and medical director and quality assurance advisor of 180;
Appointment of an interim receiver or in the alternative a monitor for Shield and 180 at the companies cost;
Production of all of Shield and 180’s financial records;
Restraining Shield and 180 from entering into any transactions that put it in a conflict of interest contrary to the policies of the Assistive Devices Program;
Payment to Webb of all dividends declared by Shield and/or 180 and not received by him.
44I am not prepared to grant the requests of either party for orders removing the other as an officer or director of Shield or 180. Nor am I prepared to remove Glazer or Sherkin. Both DiNardo and Webb cry foul of the others actions as it affects Shield and 180. I am unable to sort out on the record before me who is in the right and who is in the wrong in terms of their actions since Webb left Shield. In my view, therefore, the status quo should be maintained until trial. In my view, a resolution of the terms of the separation will resolve the corporate issues.
45With respect to DiNardo’s request for partial summary judgment concerning Humber River Regional Hospital, Shield has a contract with the Hospital to provide both CPAP and oxygen products and services. After the split, Shield supplied the oxygen and Webb, through his company, supplied the CPAP. DiNardo says that Shield paid $88,285 to the Hospital on Webb’s behalf and seeks reimbursement. Webb says that Shield has interfered with his ability to carry on the CPAP business under the Hospital contract and has made it difficult to service patients.
46Apart from the issue of DiNardo’s standing to bring such a claim on behalf of Shield, I am simply not able to resolve this claim on the basis of the evidence before me. In my view, it is a claim that will form part of the overall financial accounting between DiNardo and Webb that has to be resolved at trial.
47Similarly, to the extent that either Shield or 180 has declared dividends which have not been paid to Webb that will also have to be taken into account in the final financial resolution.
48Nor am I prepared to grant in effect an injunction restraining Shield and/or 180 from “entering into or continuing any transactions or associations that put it in conflict of interest contrary to the policies and requirements of the Assistive Devices Program.”
49I acknowledge based on the evidence that being an authorized vendor under the Ministry of Health Assistive Devices Program is important to Shield. I am not satisfied, however, from the evidence that Shield’s designation in that regard is in jeopardy at this stage. It is as important to DiNardo as it is to Webb.
50Further, I consider Webb’s request to appoint a receiver or monitor to be more tactical than necessary at this stage. There is no acceptance of such an appointment from an individual or firm experienced in such tasks. Nor does the evidence establish that such an appointment is just and convenient at this stage.
51Nor do I consider that the court should be approving that DiNardo and Sherkin pay themselves reasonable salaries in 180. If the shareholders cannot agree, that issue must await the final resolution of matters between DiNardo and Webb.
52Finally, the production of Shield and 180’s financial records will follow as part of pretrial production, to the extent required and need not be dealt with here. Webb’s evidence establishes that he has already obtained a lot of financial information concerning Shield and 180 directly from the bank. If need be, I may be spoken to in respect of further production.
53In terms of the additional relief sought by DiNardo and Webb generally, I view the requests to be part and parcel of the larger issue dealing with the resolution of their business relationship. As noted earlier, those issues, in my view, are better resolved at trial and not as incidental or alternative requests for relief to a summary judgment motion.
54As noted, having dismissed DiNardo’s summary judgment motion in respect of agreement, the action must proceed to trial and I remain seized of the action. In that regard, and in light of my decision, I direct counsel to consider how best to approach a trial of the remaining issues. Counsel should meet and agree, if possible, on the remaining issues and how they can be most expeditiously dealt with at trial. They should then arrange an hour appointment before me prior to the middle of July 2015 through the Commercial List office, to discuss and resolve the scheduling of the trial.
55In light of my decision, I decline to order costs at this stage. Costs of both DiNardo’s motion and Webb’s cross motion reserved to the trial.
L. A. Pattillo J.
Released: June 11, 2015