ONTARIO
SUPERIOR COURT OF JUSTICE
Court File No.: CV-11-421818
Date: 2015-08-14
B E T W E E N:
ARMINAK & ASSOCIATES INC.
James Zibarras, for the Plaintiff
Plaintiff
- and -
APOLLO HEALTH AND BEAUTY
Matthew Wise, for the Defendants
CARE and APOLLO BEAUTY CORP.
And APOLLO HEALTH CORP.
Defendants
A N D B E T W E E N:
APOLLO HEALTH AND BEAUTY
CARE and APOLLO BEAUTY CORP.
And APOLLO HEALTH CORP.
Plaintiffs by Counterclaim
- and -
ARMINAK & ASSOCIATES INC. and
HELGA ARMINAK
Defendants by Counterclaim
HEARD at Toronto: July 27, 2015
JUDGMENT
D.L. Corbett J.:
[1] This motion for summary judgment was first argued before me on August 1, 2015. In a handwritten endorsement given that day, I decided as follows:
The plaintiff has a liquidated claim for product delivered under purchase orders for an aggregate amount of U.S. $280,147.52.
The defendant alleges that the plaintiff was involved in an ongoing scheme to manipulate the defendant’s purchasing practices, and to this end bribed one of the defendant’s purchasing employees, Ms. Rogers. The employee, Ms. Rogers, was terminated from her employment, and she has given evidence about her role in this scheme. Ms. Rogers’ credibility will be an important aspect of any decision on the merits.
Counsel have presented thorough and persuasive arguments in their written and oral submissions. I am sympathetic to the plaintiff’s position that the matter needs to move forward to a decision on the merits. Both parties acknowledge that the parties are both substantial businesses able to pay the amounts in issue – the parties need to have a forum in which to get a determination of all issues on the merits.
In this case, there is an arguable counterclaim, and it is not asserted on the basis of bald allegations to delay as long as possible the evil day when payment will be ordered. However, there is a glaring gap in the [defendant]’s evidence. It has not proved damages. I accept that in the absence of damages being proved at trial, if the defendant succeeds on the issue of liability in respect to the counterclaim, it should be able to recover at least the secret commissions and something perhaps for punitive damages. This would not significantly reduce the defendant’s liability for the liquidated claim.
That said, the defendant’s counterclaim is nominally for about $1.7 million. It is possible that damages have been very substantial – that will depend on the number of transactions, the volume of product involved, and the impact of the impugned conduct on prices paid for product by the defendant. I cannot see how this could be established without a damages report and likely an expert report on damages.
The parties have an obligation to put their best foot forward on a motion for summary judgment. The extent to which this requires a responding party to prove damages will vary from case to case. Here, at this stage in the proceedings, the responding defendant needs to satisfy the court of the general existence and scale of the damages – not on an emotive basis arising from the visceral response of the defendants’ principals – but on a sound analytical basis, supported by the evidence. Given what may be a meritorious claim by the defendant that, as a matter of common sense, should cause some damage, I exercise my discretion to permit the defendant to fill this gap in its evidence on this motion. For these reasons:
This motion is adjourned to a motions date to be fixed before D.L. Corbett J. in accordance with this endorsement;
The defendant shall deliver any further evidence on which it intends to rely on the issue of damages (including any expert reports in this regard);
The plaintiff shall deliver any responding materials on the defendant’s damages;
The parties shall agree between themselves on a schedule for 2 and 3 and any further steps required before returning before this court, failing which they shall arrange a teleconference with the court for directions;
Costs of this motion to date in my discretion on final determination of this motion and shall reflect that: (a) the counterclaim is not a proper subject for summary judgment on the issue of liability; and (b) the defendant has not taken steps that it should have taken to establish that it has material damages.
Counsel shall provide their agreed schedule to the court by August 29, 2014, failing which a teleconference may be arranged for early September.
[2] The record before me now is virtually unchanged in substance from the record that was before me on August 1, 2014. No expert reports have been filed. A document, apparently prepared by Ernst & Young, dated December 4, 2014, has been filed but has not been tendered properly as evidence. It has no evidentiary value. An affidavit has been filed from Charles Wachsberg, the President and CEO of the defendants. The substantive portions of that affidavit run from paragraphs 8 to 19 of the affidavit, comprising roughly three pages of double-spaced text. This evidence does not come close to establishing that the defendants have suffered material damages for which the plaintiff may be liable in the counterclaim. For the reasons that follow, the plaintiff’s motion for summary judgment is granted on its claim, which shall be payable forthwith, plus interest, plus costs.
Theory of the Damages Claim
[3] The defendant argues that it is entitled to damages in the counterclaim on four bases:
(i) Losses from purchase of excess supplies of packaging from the plaintiff;
(ii) Losses from overpayment for packaging supplies from the plaintiff;
(iii) Costs of paying severance to Ms Rogers, whose employment was terminated by the defendant because of her involvement in the plaintiff’s pricing scheme; and
(iv) Punitive and exemplary damages.
[4] The
Excess Supply of Packaging
[5] The defendant has not proved any losses under this head of damage.
[6] The defendant has proved that it retains some portion of the packaging it purchased from the plaintiff. It has not proved how much of this packaging it still has. It has not explained why it has been unable to use this packaging in the nearly five years since it purchased it, aside from making bald assertions that this supply was surplus to its needs. It has not explained why it has not sold this excess product for salvage to mitigate its losses. It has not provided any of the analysis I indicated seemed necessary in my endorsement of August 1, 2014.
Overpayment for Packaging Supplies
[7] The defendant’s evidence on this point is based on comparisons of transactions chosen by the defendant without explanation or justification. It is not supported by an expert opinion that would provide the needed analysis to justify this claim for damages. It fails to take account of the specific context of the impugned transactions, which appear to give the plaintiff an advantage in undercutting other bidders, rather than shielding the plaintiff from competitive bids. In essence, this evidence does not go further than express an opinion – from Mr Wachsberg – that the defendant paid too much for product because of the pricing scheme. This opinion is entitled to no weight, coming as it does from a fact witness rather than an independent expert, and being unsupported by a report that sets out the assumptions and analysis upon which it is based.
Severance and Notice Paid to Ms Rogers
[8] The defendant terminated the employment of Ms Rogers once it learned of her involvement in the plaintiff’s pricing scheme. It paid Ms Rogers notice and severance rather than terminating her for cause. The defendant seeks to recover this payment from the plaintiff.
[9] If the allegations against the plaintiff are true, then Ms Rogers breached her duty of fidelity to the defendant and accepted secret commissions in conflict of interest. Ms Rogers has said under oath that she did these things.
[10] On the facts before me, the defendant had no legal obligation to pay notice or severance to Ms Rogers. The defendant says that it did so on the basis of legal advice it received from its expert employment law solicitors. It has not disclosed the advice that was received, or the factual assumptions upon which that advice was based.
[11] No legal authority was provided for the proposition that the plaintiff could be liable for a voluntary payment to Ms Rogers by the defendant in these circumstances.
Punitive and Exemplary Damages
[12] As I indicated in my endorsement of August 1, 2014, if the defendant succeeds in its counterclaim, this is the sort of case where a trial court could well award punitive and/or exemplary damages. Suborning a customer’s employee to manipulate contract prices is very bad behaviour and deserving of sanction. If the plaintiff’s conduct did not cause material damage to the defendant, the court may be persuaded to award more in the way of punitive damages to provide the necessary disincentive to the plaintiff in its future business dealings.
[13] Punitive damages are unliquidated. They are discretionary. On the state of the record before me I cannot conclude that they will be substantial, although it is possible that they will be.
Summary and Conclusion
[14] After having given the defendant an additional year to furnish proof of damages in support of its $1.7 million claim, I find that the only basis established on the materials before me is an unliquidated claim for punitive damages. I am at a loss to understand why the defendant has taken such a cavalier approach after it was given the benefit of the doubt a year ago and a second chance to shore up its damages evidence. In these circumstances I am not prepared to defer judgment or payment of judgment of the plaintiff’s uncontested claim for payment for goods ordered and delivered.
Request to Dismiss the Counterclaim
[15] The plaintiff asks that I go further and dismiss the counterclaim outright. The plaintiff amended its notice of motion roughly two weeks before the second return date of this motion to give notice that it intended to seek dismissal of the counterclaim.
[16] I decline to dismiss the counterclaim now for the following reasons:
(i) The hazard between the motion as framed originally (judgment and payment of the plaintiff’s claim) is materially different from the hazard in the amended motion (judgment for the plaintiff and dismissal of the counterclaim and set-off claim). In the former, the question is whether the plaintiff will be paid what it is owed pending determination of the defendant’s counterclaim; in the latter the question is whether the defendant may pursue its counterclaim at all.
(ii) Notice of the plaintiff’s intention to seek dismissal of the counterclaim was after all materials had been filed and the record was complete.
(iii) The defendant has established a prima facie case on the liability issues in the counterclaim.
(iv) The defendant has a cogent argument for unliquidated punitive damages in respect to the counterclaim even if it is unable to prove any other damages.
(v) Loss of the plaintiff’s original motion for summary judgment, plus interest, plus costs, is a sufficient sanction for the defendant’s cavalier approach to its damages claim thus far.
Conclusion and Order
[17] The plaintiff’s motion for summary judgment is granted. The defendant’s defence of set-off is dismissed, without prejudice to the defendant’s counterclaim, which may proceed on the merits. The plaintiff’s judgment is not stayed pending final determination of the defendant’s counterclaim. This decision does not preclude a further motion for summary judgment on the counterclaim. I am seized of all motions and case management of this case until trial.
[18] My findings respecting the liability and damages aspects of the counterclaim are made with the sole purpose of determining whether I should exercise my discretion to dismiss the motion for summary judgment pending trial of the defendant’s counterclaim and set-off claim, stay the plaintiff’s judgment, or otherwise defer the defendant’s obligation to pay the plaintiff’s claim pending final determination of the defendant’s counterclaim. My findings do not bind the court trying the counterclaim.
Costs
[19] Costs of the motion for summary judgment throughout to the plaintiff from the defendant fixed at $64,000, inclusive. D.M. Brown J. awarded the costs of the motion for leave to appeal in the cause. I fix those costs at $8,000, inclusive. Thus the defendant shall pay the plaintiff total costs of $72,000 inclusive, payable within thirty days.
D.L. Corbett J.
Released: 20150814
COURT FILE NO.: CV-11-421818
DATE: 20150814
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ARMINAK & ASSOCIATES INC.
Plaintiff
- and –
APOLLO HEALTH AND BEAUTY CARE and APOLLO BEAUTY CORP. and APOLLO HEALTH CORP.
Defendants
JUDGMENT
D.L. Corbett J.
Released: 20150814