SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: CV-15-1359-00SR
DATE: 20150703
RE: Marydel Homes (West) Inc. v. Cachet Estate Homes (Castlemore) Inc.
BEFORE: Tzimas J.
COUNSEL:
Vito Scalisi, for the Plaintiff
Judy Hamilton, for the Defendants
HEARD: June 26, 2015
E N D O R S E M E N T
OVERVIEW
[1] The Defendant, Desiderio C. Auciello, also known as Desi. C. Auciello (“Auciello”), asks this court to dismiss the claim made against him by Marydel Homes (West) Inc., (“Marydel”), in its Amended Statement of Claim, without leave to amend, pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure. Auciello contends that Marydel failed to plead any material facts to disclose any reasonable cause of action against him. As pleaded, Auciello contends that it is “plain and obvious” that the statement of claim fails to disclose a reasonable cause of action against him.
[2] Marydel opposes the motion and contends that as pleaded the Amended Statement of Claim contains sufficient facts to disclose a reasonable cause of action against Auciello. Moreover, Marydel contends that the threshold for sustaining a pleading under Rule 21.01(1)(b) is not high and that as pleaded, Marydel’s claim crosses that threshold. In short, it is not plain and obvious, assuming the facts pleaded to be true, that Marydel’s pleading discloses no reasonable cause of action against Auciello. Marydel asks this court to dismiss Anciello’s motion.
BACKGROUND
[3] Marydel seeks damages in its Amended Statement of Claim against two parties, Cachet Estate Homes (“Castlemore”) Inc. (“Cachet”) and Auciello. Marydel entered into an Agreement of Purchase and Sale for the purchase of certain lots from Castlemore with Cachet. Auciello is an officer, director, shareholder and the operating mind of Cachet.
[4] The Agreement included an irrevocable letter of credit by Marydel in favour of Cachet to secure its obligations. A crucial condition of the letter of credit was a ten-day notice period for Cachet to identify any deficiencies by Marydel, before Cachet could draw down on the letter of credit. The notice period was intended to give Marydel the opportunity to address the deficiencies, without resort to the letter of credit.
[5] Marydel pleads that Cachet failed to respect the ten-day notice requirement when it drew down on the letter of credit.
[6] In its submissions to this court, counsel placed Cachet’s bad faith conduct at the feet of Auciello who, as a distinct and separate actor, contravened his obligations as an officer and director of Cachet was the one who caused the breach of the the ten-day condition. Counsel contended further that the distinction in the actions of Cachet and Auciello was sufficiently pleaded to support distinct causes of action against the two parties.
[7] Auciello’s counsel disagreed with this distinction and noted that Auciello was the alter ego of Cachet. She explained the factual foundation as pleaded is insufficient to ground a distinct claim against Auciello.
[8] The critical paragraph in the Amended Statement of Claim is the following:
Para.17. Marydel states that the Defendants did not act in good faith and Auciello acted beyond the scope of his authority and failed to act in the best interests of Cachet in failing to provide notice of any alleged deficiencies or default and inducing a breach of contract by then taking steps to draw upon the letter of credit. As a result, Marydel has suffered damages.
ANALYSIS
[9] The law is settled that an officer of a corporation will not be held personally liable for the acts of a corporation while he performs his bona fides functions in the interests of a corporation. To hold an officer personally liable, a plaintiff must prove that the officer acted outside of the scope of duty and committed an independently actionable wrong, see for example, Adga Systems International Ltd. v. Valcom Ltd., 1999 1527 (ON CA), [1999] O.J. No. 27.
[10] Absent allegations of fraud, deceit, dishonesty or want of authority, “officers and employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own”: see ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., 1995 1301 (ON CA), [1995] O.J. No. 3556, (ONCA). See also Normart Management v. West Hill Redevelopment Co., 1998 2447 (ON CA), [1998] O.J. No. 391 (ONCA), A. Mantella & Sons Ltd v. Ontario Realty Corp., (2008), 2008 23953 (ON SC), 91 O.R. (3d) 449, (ONSC), and Meditrust Healthcare Inc. v. Shoppers Drug Mart, a division of Imasco Retail Inc., 1999 2316 (ONCA).
[11] The elements of the tort of inducing a breach of contract are:
(a) a valid, enforceable contract between the plaintiff and a third party;
(b) knowledge by the defendant of the contract;
(c) an intentional act on the part of the defendant to cause a breach of contract;
(d) damage to the plaintiff; and
(e) a lack of justification for the defendant’s actions.
See Ontario Store Fixtures Inc. v. Mmmuffin Inc. (1989) 4229 at p.5.
[12] Finally, the law has also recognized that a statement of claim cannot simply plead a conclusion of tortious conduct to ground a cause of action against an officer or director of a corporation. The claim must contain the specific facts to ground the basis for the conclusion that there is a separate actionable breach against that director or officer and that the individual in question is being sued in his or her personal capacity. Stated differently, to make it plain and obvious that a reasonable cause of action lies against an officer or director of a corporation sufficient facts must be pleaded to support the proposition that he or she acted outside the scope of authority, outside of the corporation’s best interests, or engaged in tortious conduct in one’s personal capacity, as opposed to on behalf of the corporation.
[13] When these principles are applied to the pleadings in question, the analysis comes down to the following questions:
(a) Do the facts as pleaded suggest that Auciello’s conduct was consistent with and inseparable from Cachet’s actions?
(b) Did Auciello perform the bona fides functions in Cachet’s interests?
[14] If the answer to these questions is yes, then there can be no separate cause of action against Auciello; his conduct would be subject to the “Said v. Butt” exception.
[15] If Auciello’s conduct was inconsistent and separate from Cachet’s actions and if Auciello acted outside of the scope of his authority as an officer and director of Cachet, then those facts may give rise to a reasonable cause of action personally against Auciello. The question then shifts to the sufficiency of the pleading insofar as the distinction is concerned. If the pleading is insufficient, but there are facts that could be pleaded, then it is appropriate to give the plaintiff to amend the claim appropriately.
[16] On the face of Marydel’s amended pleading, even with the low threshold for the consideration of a Rule 21.01(b) motion, it is not plain and obvious that Auciello acted outside of the scope of his authority as a director of Cachet. Rather, having regard for the pleading as a whole, apart from the bald pleading in paragraph 17 concerning Auciello’s particular conduct, the facts as pleaded create the impression that Auciello and Cachet are one and the same.
[17] In other words, as pleaded, Marydel’s Amended Statement of Claim offers virtually no facts to ground a cause of action personally against Auciello. On a plain reading of the pleading, there is virtually no factual foundation to support the contention that Auciello, as distinct from Cachet, induced Cachet to draw down on Marydel’s letter of credit. The content of paragraph 17 is insufficient to ground the allegations of personal tortious conduct. The claim against Auciello personally, if it is to cross the threshold of a claim that represents a reasonable cause of action, must be pleaded with much greater specificity.
[18] Recognizing Marydel’s request that it be given the opportunity to amend its claim to respond to its deficiency as it relates to the personal claim against Auciello, as well as Rule 26.01, leave is granted to Marydel to further amend its claim. In doing so, even though Marydel did not present a proposed draft of further amendments to satisfy the requirements of Rule 21.01(b), counsel’s submissions suggested that there are facts to be pleaded. It is therefore appropriate to give Marydel that last chance.
[19] Insofar as the claim for punitive damages is concerned, it is not plain and obvious that such a claim would not succeed against Cachet. As for the claim against Auciello, in the absence of an amended pleading there can be no claim for punitive damages against Auciello. Although it may be assumed that the amended pleading may resuscitate the personal claim for punitive damages against Auciello it is impossible to make any pronouncement until such time as the amendment is made.
FINAL DISPOSITION
[20] The claim against Auciello, as pleaded, fails to disclose a reasonable cause of action against Auciello and it is thereby struck in its entirety. However, leave is granted to Marydel to amend its Amended Statement of Claim to amend its pleading to plead sufficient facts to support a personal claim against Auciello, such amendment to be made within thirty days from the date of this order.
[21] Regarding costs, the parties are strongly encouraged to reach agreement between them. If they are unable to reach agreement, then Auciello may make its submission by no later than July 7 and Marydel may respond by no later than July 13, 2015. Both parties are to limit their respective submissions to two pages, double-spaced as well as an accompanying bill of costs of a reasonable length.
Tzimas J.
DATE: July 3, 2015
COURT FILE NO.: CV-15-1359-00SR
DATE: 20150703
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Marydel Homes (West) Inc. v. Cachet Estate Homes (Castlemore) Inc.
BEFORE: Tzimas J.
COUNSEL: Vito Scalisi, for the Plaintiff
Judy Hamilton, for the Defendants
ENDORSEMENT
Tzimas J.
DATE: July 3, 2015