CITATION: Sproule v. Tony Graham Motors Group, 2015 ONSC 3976

COURT FILE NO.: 14-61172

DATE: June 19, 2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: DARREN SPROULE, Plaintiff

AND:

TONY GRAHAM LEXUS TOYOTA, et. al., Defendants

BEFORE: MASTER MACLEOD

COUNSEL: Andrew Lister, for the Plaintiff, moving party

Jim Anstey, for the Defendants, responding parties

HEARD: May 19th, 2015

ENDORSEMENT

[1] This is a motion by the plaintiff for an order that the defendants make additional production and answer questions refused on cross examination.

[2] The issue to be decided is whether the defendants are obliged to make further detailed disclosure of corporate and financial records. The plaintiff believes this information will support his assertion the defendants are collectively to be regarded as his employer. More urgently he argues these documents are necessary to resist a scheduled motion for summary judgment.

[3] For purposes of the motion it may be accepted that the degree of financial integration and control amongst the defendant corporations is relevant. The interesting question is whether admissions by the defendants make the requested production unnecessary. The court must consider the utilitarian and parsimonious principle of proportionality in addition to the traditional tests of relevance. I have come to the conclusion that the admissions are adequate and further detailed disclosure is unnecessary at this point.

[4] For the reasons that follow the court declines to grant the requested relief.

The factual background and the litigation

[5] In Ottawa there are several automotive dealerships that bear the name of Tony Graham. Not surprisingly each dealership consists of a separate operating corporation and collectively they identify as the Tony Graham Automotive Group. The Automotive Group is not a legal entity. There is a holding company, Tony Graham Motors Ltd., which owns most of the shares of the operating companies.

[6] The plaintiff began employment with the Graham Automotive Group in 1998 when he became a sales representative for a Toyota dealership operated by Tony Graham Motors (1980) Ltd. He was later promoted to management positions at that dealership. In 2005 he was hired as General Manager of a Nissan Infiniti dealership also owned by the Graham family. According to the Record of Employment issued at the time, his employment was transferred from Tony Graham Motors (1980) Ltd. to its "sister company". From 2005 until 2014 the plaintiff was General Manager at the Nissan Infiniti dealership operated by Graham Automotive Sales Ltd.

[7] The plaintiff's employment ended in June of 2014 under circumstances that are in dispute. It is Mr. Sproule's position that he was constructively dismissed whereas it is the position of the defendants that he resigned and abandoned his position. This of course is the central question in the litigation and it is well not to lose sight of that. Unless the plaintiff was wrongfully dismissed he has no case at all. If he was dismissed without notice and without cause then he will be entitled to damages but not otherwise.

[8] The dispute involves the proposed sale of the Nissan Infiniti dealership and the impact of the proposed sale on the plaintiff's continued employment. Apparently the owners had decided to sell the Nissan Infiniti dealership and had a buyer but the transaction had fallen through on more than one occasion. In June of 2014 it was anticipated the dealership would be sold in July.

[9] The plaintiff claims that earlier in the year when the sale was first proposed, he had been promised by Maureen Graham he would continue to have employment with the Graham Automotive Group after the sale. In fact he says he was led to believe he would be made the manager of the Lexus dealership. He asserts that in June of 2014 he was told the contrary. He says he was informed at that time he would no longer have a place with Tony Graham after July 2nd, 2014.

[10] The defendants have a very different version of events. The proposed sale did not close in July in any event. The defendants state that the plaintiff was never terminated. Even had the sale closed, the defendants state it was expected the plaintiff would continue as General Manager of the dealership. It will be their evidence he was told this and the new owner would have expected him to remain in place.

[11] Obviously the determination of these important facts is not my purpose at the moment. If the plaintiff is correct that he was effectively dismissed without cause and if his full 17 years of employment with the Tony Graham Automotive Group is recognized then (subject to mitigation) he would be entitled to substantial pay in lieu of notice. The amount claimed in the statement of claim is $294,895.00 notice damages plus the value of lost benefits during the period and a claim for punitive damages in the amount of $50,000.00.

[12] When he commenced this litigation the plaintiff named all of the Graham family's companies as defendants along with Maureen Graham and Elizabeth Graham personally. He seeks to rely upon the doctrine of "common employer". The defendants have brought a summary judgment motion to dismiss the action against all of the defendants that are not "operating companies".

[13] It is in the context of the summary judgment motion that the present motion arises. The plaintiff has demanded financial and corporate disclosure from all of the defendants in order to resist the motion for summary judgment. According to the plaintiff it would be unfair for the court to determine the question of potential liability before he has access to documents he might need to prove a common enterprise.

[14] The defendants argue it is outrageous to require disclosure of highly sensitive financial information so that the plaintiff may go on a completely unnecessary fishing expedition. In any event they are prepared to make admissions that should render further detailed disclosure unnecessary.

Admissions

[15] The defendants would concede that the plaintiff should be regarded as a 17 year employee but it is their position that Graham Automotive Sales Inc. is the employer. For purposes of the litigation however the defendants are prepared to permit the action to continue against the operating companies. In fact they go further. In their affidavit material they undertake that the operating companies will be jointly and severally liable with Graham Automotive Sales Inc. "for any damages and costs the court might award in this action". In this way they seek to narrow the issues in the litigation. Rather than arguing the point they agree that any judgment may be enforced against the four defendants they identify as operating companies.

[16] The "operating companies" as defined by the defendants are as follows:

a. Graham Automotive Sales Inc. (the actual employer) which formerly operated the Nissan and Infiniti dealership on Robertson Road;

b. Tony Graham Luxury Automobiles Ltd. (named as Tony Graham Lexus Toyota in the statement of claim) which continues to operate a Lexus dealership on West Hunt Club Road;

c. Tony Graham Motors (1980 ) Ltd., which continues to operate a Toyota dealership on Merivale Road; and,

d. Tony Graham Kanata Ltd. which continues to operate a Toyota dealership on Palladium Drive.

[17] The defendants also acknowledge that the remaining corporations which they style the "holding companies" are owned by the Graham Family but they deny that those corporations could possibly be considered employers of the plaintiff. The particulars of each corporation are described at paragraph 7 of Mr. Colley's affidavit. In particular the affidavit discloses the following:

a. Tony Graham Motors Ltd. is a holding company that owns the majority of the shares of three of the operating companies and a significant proportion of Graham Automotive Sales Inc.

b. One of the numbered companies "507" is owned by members of the Graham family including Patrick Graham who is not a party to the action. That company owns significant shares of Tony Graham Motors Ltd. as well as two other numbered companies – "632" and "633".

c. Another numbered company "508" is primarily owned by Maureen Graham and holds significant shares in Tony Graham Motors Ltd. and the two other numbered companies – "632" and "633".

d. The numbered companies, "632" and "633" own real estate and are controlled by "507" and "508".

e. The numbered company "532" owns investments and is controlled by the operating companies.

f. All of these corporations share officers and directors and may share certain resources but only the operating companies have employees.

[18] It is these "holding companies" along with the personally named defendants, Maureen Graham and Elizabeth Graham which the defendants seek to extract from the litigation by means of the summary judgment motion. They acknowledge that the corporations are related corporations with overlapping ownership and common directors and officers. They have provided affidavits from Geoff Colley who is Secretary Treasurer of each corporation and he has answered many detailed questions under cross examination. It is the position of the defendants that these admissions are sufficient and it is not necessary to provide the plaintiff with further details about the internal workings or financial affairs of closely held private corporations.

Analysis

[19] Before continuing I feel obliged to observe that as a practical matter the undertaking to have the operating companies jointly and severally liable appears to eliminate any real benefit in proceeding against the other defendants. The plaintiff may be able to survive the technical requirements of a summary judgment motion but if he does so and is ultimately unsuccessful he runs the very real risk of costs awards against him that may eliminate any damages he recovers. The plaintiff's claim cannot exceed $500,000.00 if he is completely successful in recovering 100% of the claimed damages and obtaining punitive damages. He has at least partially mitigated his losses as he became General Manager of Orleans Kia on February 17th, 2015. Mr. Colley deposes that the operating companies had annual revenues in excess of $185 million in 2013.

[20] If the plaintiff is wildly successful in the litigation, I have trouble imagining there would be any difficulty in enforcing the judgment against at least one of the operating companies. Three of these corporations continue to operate busy high profile car dealerships. Moreover, even if the operating companies are judgment proof because all of the assets are held by the holding companies, there are remedies available to undo any transactions effected with the objective of defeating the claims of creditors – including judgment creditors.

[21] I strongly suspect that the battle over which defendants are proper defendants will prove to be an expensive side show to the main event. As noted above, the essential question at the heart of the litigation is whether the plaintiff resigned or was fired. I urge the parties to seek a negotiated resolution to this issue before they incur further costs. All that should be required is to guarantee that the plaintiff will be paid by someone if he is successful in the litigation. There can be no other legitimate purpose in suing each of the individual defendants. All of the disputed disclosure is sought solely to demonstrate the extent to which the corporate defendants are a common enterprise.

[22] This observation is obviously not a finding of fact nor a ruling. It plays no part in my analysis. I do not propose to substitute my suspicion, imagination or concern for runaway costs for the evidence. I am simply pointing out the potential futility of arguing this motion and then a summary judgment motion if the only point in doing so is to ensure the collection of a judgment that is at this stage purely hypothetical.

[23] I recognize that just because it may be unnecessary to sue additional defendants is not by itself a bar to doing so. Necessity may not be a pre-requisite to a common employer finding. There is at least one decision of this court which holds that risk that the employer is judgment proof is not a precondition to advancing a claim such as this. In Bitterman v. Knoll Inc. [2005] O.J. No. 3791 (S.C.J.) which was a rule 21 motion, this court rejected the idea that the employer corporation needed to be insolvent before invoking the doctrine. The fact that recovery was available against the employer corporation was not by itself a bar to asserting the common employer doctrine. At least it was not a bar at the pleadings stage. A rule 20 analysis may be different.

[24] The merits of the rule 20 motion are not before me on this preliminary motion. At this point the only question is whether the evidence sought by the plaintiff remains relevant and necessary in light of the admitted facts. I am however required to consider Rule 1.04 in applying or interpreting any of the rules of civil procedure. That rule reads as follows:

General Principle

1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

Proportionality

(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[25] There have also been changes to the rules governing production, discovery and production. Gone are the days when "semblance of relevancy" was enough to trigger a disclosure obligation. Now the requested information must be relevant to the issues actually in dispute. The 2010 amendments to the rules narrowed the scope of questioning but also require parties and the court in interpreting and applying the rules to consider proportionality. That is a more utilitarian analysis. What purpose would it serve to put the parties to the expense and trouble of producing information if nothing much will turn upon it?

[26] The information sought by the plaintiff includes the following:

a. The tax returns, filings and related schedules for all corporate defendants for the past three years;

b. Copies of the shareholder directories for all corporate defendants;

c. The financial monthly statements of the Nissan/Infiniti dealership from January 2013 to June 2014;

d. All documents relating to the sale of the Nissan/Infiniti dealership to the Myers Automotive Group;

e. A list of all employees which work for the various corporate entities and charge backs for services offered by various employees to all of the defendants; and,

f. The consolidated and unconsolidated 2013 financial records for the Tony Graham Automotive Group.

[27] The plaintiff asserts that he needs these documents to show the interrelatedness of the corporate defendants. As noted earlier, it is conceded the corporate defendants are interrelated and share joint management. The defendants have also agreed to joint and several liability amongst the operating companies. There is therefore no need to order the highly intrusive disclosure requested by the plaintiff to establish the fact that the holding companies are ultimately controlled by the same family and have the same management. This is conceded.

[28] In his argument Mr. Lister focuses on the relevance of the documents to show facts that are now clearly admitted. He ignores proportionality. Even if these documents remain relevant, it is disproportionate to order production of additional documents to prove a fact that is not in dispute. None of these documents would show the plaintiff as being an employee of any of the other corporations in the sense of being on their payroll. Mr. Lister simply seeks to show that all of the Graham companies form a common enterprise and should be found to collectively be the employer.

[29] The leading case on the common employer doctrine in Ontario is Downtown Eatery (1993) Ltd. v. Ontario (2001) 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.) In that case the Court of Appeal reviewed the developing law in this area and concluded that an employee could have more than one employer at the same time. In Downtown Eatery the enterprise in question was a single-site night club business operated through more than one corporation. The structure was clearly designed to segregate the liability to employees from the corporations holding the lease, the liquor licence and the trademarks. The court had no difficulty in imposing joint and several liability for the obligations owed to the terminated employee.

[30] Downtown Eatery was decided on policy grounds. The court stated that the employment relationship should be regarded as more than a matter of form and technical corporate structure. Cited with approval was the British Columbia decision of Sinclair v. Dover Engineering Services Ltd. (1987) 1987 CanLII 2692 (BC SC), 11 B.C.L.R. (2d) 176 (S.C.B.C.); aff'd (1988) 1988 CanLII 3358 (BC CA), 49 D.L.R. (4th) 297 (B.C.C.A.) In that decision the court articulated the principle that "as long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer", the entities should be regarded as one "for the purpose of determining liability for obligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound in contract."

[31] Interconnectivity between corporate defendants is not by itself sufficient however. In Colak v. UV Systems Technology Inc. [2007] B.C.J. No. 769 (B.C.C.A.); leave to appeal refused [2007] S.C.C.A. No. 306 the B.C. Court of Appeal found that there was no joint employment by the parent corporation and its subsidiary. This was notwithstanding transfer of all assets from the subsidiary employer to another corporation under a joint venture agreement. The court found that the reorganization was a legitimate business arrangement and was not designed simply to protect the parent corporation from suit by an employee. The key was the legitimate purpose of the structure and the fact that the employee had never done work for the parent corporation. Thus there was held to be no common employment.

[32] These decisions reflect a balancing between recognition of legitimate business structures on the one hand and concern to prevent injustice to employees by rigid application of contractual principles on the other. As recently observed by this court in King v. 1416088 Ontario Ltd. (Danbury Industrial), 2014 ONSC 1445; aff'd 2015 ONCA 312, although an employer "is entitled to establish complex corporate structures and relationships, courts should be vigilant to ensure that such arrangements do not work an injustice in the realm of employment law". If persuaded that the defendant corporations are interconnected, and that the plaintiff effectively worked for them all, the court may find that they are effectively one employer. While it is a precondition to such a finding that corporations are interrelated, that by itself appears not to be sufficient. It is also necessary to show that it is unjust to permit the employer to shelter behind the corporate structure to deny compensation to an employee.

[33] In my view the admissions and concessions by the defendants establish that all of the defendant corporations are interconnected. Joint control and administration is admitted. The defendants seek to distinguish between the "operating companies" and the holding or investment companies solely on a functional basis. They do not deny that the defendants are interconnected financially and administratively. Rather as I apprehend it their main argument is that the plaintiff never did any work for the holding corporations and cannot be considered an employee.

[34] The rules of civil procedure encourage admissions and parties who are prepared to make admissions should not be required to provide further unnecessary evidence to support a proposition that is not in dispute. The court will be alert to circumstances in which a party seeks to conceal damaging evidence by making what appears to be an innocuous admission. That is not the case here. The defendants concede they are financially and administratively linked and have generally disclosed how the ownership works. I do not accept the argument that the plaintiff requires to drill down into these facts or is entitled to the level of financial detail sought here. It might be otherwise if the defendants were denying they had common shareholders, joint management and intercompany financial dealings. They do not.

Conclusion and Disposition

[35] In my view the plaintiff's requests are disproportionate and unnecessary for the summary judgment motion. Under the circumstances the motion is dismissed and the parties are to proceed with the summary judgment motion.

[36] In reaching this conclusion the court relies upon the admissions and undertakings contained in the pleadings, the responding affidavits and the transcripts of the cross examination. It follows that the plaintiff may rely upon these admissions and the defendants may not resile from them without leave of the court.

[37] I will just add that this ruling should not be taken to insulate the defendants from answering proper discovery questions with demonstrable relevance to the pleadings. It may be that specific records are relevant for the discovery stage once it is determined if the involvement of all of the defendant corporations can survive the motion for summary judgment. It may be that answers given at discovery will render additional inquiries relevant or give rise to appropriate requests for undertakings. I am not to be taken as prejudging those issues.

[38] I will entertain costs submissions in writing within the next 30 days.

Master MacLeod