CITATION: Arnone et al. v. Hacio et al., 2015 ONSC 5266
COURT FILE NO.: CV-11-0450
DATE: 20150821
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GINO L. ARNONE PROFESSIONAL CORPORATION, KENNETH E. ERICKSON PROFESSIONAL CORPORATION AND ROBERT E. SOMERLEIGH PROFESSIONAL CORPORATION, C.O.B. IN PARTNERSHIP AS ERICKSON & PARTNERS
Plaintiffs
– and –
CHRISTOPHER D.J. HACIO AND CHRISTOPHER D.J. HACIO PROFESSIONAL CORPORATION
Defendants
– and between–
CHRISTOPHER D.J. HACIO, CHRISTOPHER D.J. HACIO PROFESSIONAL CORPORATION, DANIELLA HACIO AND DONALD PATTERSON, AS TRUSTEES OF THE HACIO FAMILY TRUST
Plaintiffs by Counterclaim
– and –
GINO L. ARNONE PROFESSIONAL CORPORATION, KENNETH E. ERICKSON PROFESSIONAL CORPORATION, ROBERT E. SOMERLEIGH PROFESSIONAL CORPORATION, C.O.B. IN PARTNERSHIP AS ERICKSON & PARTNERS, GINO L. ARNONE, KENNETH E. ERICKSON, ROBERT E. SOMERLEIGH, PERSONALLY AND AS TRUSTEES OF THE ARNONE FAMILY TRUST, ERICKSON FAMILY TRUST, SOMERLEIGH FAMILY TRUST, SOUTHCOURT REALTY PARTNERSHIP, SOUTHCOURT MANAGEMENT SERVICES AND 1164294 ONTARIO LIMITED
Defendants to Counterclaim
John G. Illingworth, for the Plaintiffs
Roderick Johansen, for the Defendants by Counterclaim
Mark Veneziano for the Defendants to the Counterclaim
HEARD at Thunder Bay: June 25-26, 2015
MARROCCO A.C.J.S.C.:
[1] The individuals driving this litigation practice law in Thunder Bay. All of the litigation results from the withdrawal of a partner from the law firm of Erickson & Partners. The litigation to date has been acrimonious.
[2] I do not intend to refer specifically to the allegations, the evidence or any lack of evidence, except to the extent absolutely necessary to explain this decision.
[3] The plaintiffs sued for conversion on November 18, 2011. The defendants defended the action.
[4] The defendants, along with the Hacio Family Trust, commenced an action by way of a counterclaim. The counterclaim is against the plaintiffs, plus: the remaining partners in Erickson & Partners, their individual family trusts, Southcourt Realty Partnership, Southcourt Management Services and 1164294 Ontario Limited.
[5] The counterclaim asks for damages for slander, libel and defamation against certain defendants to the counterclaim.
[6] The counterclaim seeks damages from certain counterclaim defendants for breach of contract.
[7] The counterclaim asks for an order directing the sale of 291 Court Street S. in Thunder Bay, which was, at the time, the building containing the law offices of Erickson & Partners. This building was sold to a third party on January 3, 2014. The net proceeds were divided equally amongst the Arnone, Erickson, Somerleigh and Hacio family trusts, pursuant to the December 12, 2013 decision of Mr. Justice Wright.
[8] The counterclaim asks for an order declaring that Christopher Hacio and the Christopher Hacio Family Trust Professional Corporation effectively withdrew from both Erickson & Partners and Southcourt Management Services on June 30, 2011.
[9] The counterclaim seeks an order declaring that the partnership between the various professional corporations is governed by the Partnerships Act, R.S.O. 1990, c. P.5.
[10] The counterclaim seeks various other forms of relief which are unnecessary to repeat.
[11] On this motion, the plaintiffs ask for summary judgment for conversion. At the same time, the defendants ask for partial summary judgment on their counterclaim, namely that the court order Southcourt Management Services to pay money from its capital account to them.
The Withdrawal of Christopher Hacio
[12] On April 18, 2011, Christopher Hacio notified the remaining partners in Erickson & Partners that he would withdraw as a partner effective December 31, 2011, i.e., the partnership’s fiscal year end.
[13] Subsequent to April 18, 2011, Christopher Hacio and the remaining partners discussed the details of Mr. Hacio’s withdrawal, including a withdrawal date of June 30, 2011 instead of December 31, 2011.
[14] Even if the partners agreed that Mr. Hacio could withdraw on June 30, 2011, I am satisfied for the following reasons that Mr. Hacio did not in fact leave the partnership on June 30, 2011:
• After June 30, 2011, Mr. Hacio continued to receive the same draw from the partnership as the other partners;
• Life Insurance on Mr Hacio and the other partners, payable to the surviving partners, was not cancelled;
• Mr. Hacio and his family continued to be covered by a benefits package that was only available to the partners of Erickson & Partners;
• Erickson & Partners paid Mr. Hacio’s Errors and Omissions Insurance;
• Mr. Hacio did not notify his insurer that he was leaving Erickson & Partners effective June 30, 2011, or that he had ceased to be a partner in that firm;
• Mr. Hacio did not produce, on or about June 30, 2011, directions from clients permitting him to take their files to his new firm;
• Mr. Hacio did not create a trust account for his new firm on or about June 30, 2011; and,
• Mr. Hacio remained in the offices of Erickson & Partners after June 30, 2011.
[15] I appreciate that Mr. Hacio withdrew from active management and that his use of firm resources became more formalized after June 30, 2011, but that is a very different matter than actually leaving Erickson & Partners to practice law in a different firm.
[16] On November 4, 2011, Mr. Hacio advised the remaining partners in Erickson & Partners that he would be starting his own firm on November 14, 2011. He actually left the offices of Erickson & Partners on or about November 11, 2011.
[17] Mr. Hacio began practicing law in a firm under his own name at a separate location on November 14, 2011.
[18] I am satisfied that, despite the proposals and counterproposals that passed between Mr. Hacio and the remaining partners of Erickson & Partners subsequent to April 18, 2011, Mr. Hacio did not withdraw from the Erickson & Partners partnership until November 11, 2011. This is the date upon which his allocation for 2011, among other things, should be based.
Southcourt Management Services
[19] Southcourt Management Services is a partnership which was formed to provide administrative and management services to Erickson & Partners.
[20] Southcourt Management Services only provided management services to Erickson & Partners.
[21] Southcourt Management Services funded Erickson & Partners. Specifically, Southcourt Management Services paid all of the partnership’s operating expenses, including: lease payments, utilities and advertising costs. Southcourt Management Services also paid the support staff’s wages and benefits.
[22] The partners’ capital in Southcourt Management Services was approximately the same as the amount owing to Southcourt Management Services by Erickson & Partners. The capital accounts in Southcourt Management Services were only repaid when the assets of Erickson & Partners were determined and collected. When Mr. Hacio withdrew from Erickson & Partners, the payment of any amounts owing from Southcourt Management Services to Mr. Hacio could not be made until the amount owed by Mr. Hacio to Erickson & Partners was determined.
[23] RBC, the banker for Erickson & Partners and Southcourt Management Services, also viewed Erickson & Partners and Southcourt Management Services as a consolidated unit.
[24] Mr. Hacio did not dispute on cross-examination that, when partners withdrew from Erickson & Partners in the past, there had been a single, global financial reconciliation.
[25] Mr. Hacio confirmed that following his April 18, 2011 Notice of Withdrawal, all partners—himself included—wanted an overall accounting and global resolution. He confirmed on cross-examination that none of the partners wanted individual partnership claims “cherry picked” and resolved while other claims were left outstanding.
[26] I am satisfied that Southcourt Management Services and Erickson & Partners functioned as an integrated economic unit that the partners of Erickson & Partners, including Mr. Hacio, used to organize themselves in a legally appropriate and tax-efficient manner.
[27] I am satisfied that the partners of Erickson & Partners, including Mr. Hacio, agreed that if a partner were to withdraw from the partnership, his family trust would withdraw from Southcourt Management Services on the same day. Any other outcome would lack legal, financial and common sense. If they have not already done so, the Trustees of the Hacio Family Trust are required to cause it to withdraw as a partner in Southcourt Management Services, effective November 11, 2011.
Motions for Summary Judgment
[28] In Hryniak v. Mauldin 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada provided lower courts with a number of principles concerning motions for summary judgment; the most important of these being the need to promote timeliness, affordability and proportionality within civil litigation. This culture shift is required to create, among other things, proportional procedures tailored to the needs of each particular case. This culture shift also requires judges to actively manage the legal process in line with the principle of proportionality: see Hryniak, at paras. 2, 32.
[29] Even in light of this strong direction from the Supreme Court of Canada, judges must still be confident that parties are being appropriately served by each individual use of summary judgment. As recently noted by Mr. Justice Perell in Martin v. Attard Plumbing Ltd., 2015 ONSC 5037, 2015 CarswellOnt 12205, at para. 49:
In Hryniak v. Mauldin, 2014 SCC 7, although the Supreme Court of Canada commanded a very robust summary judgment procedure, it did not foreclose lower courts from simply dismissing the summary judgment motion and ordering that the action be tried in the normal course. Indeed, where there are genuine issues for trial and the lower court concludes that employing the enhanced forensic tools of the summary judgment procedure would not lead to a fair and just determination of the merits, the court should not decide the matter summarily. [Citations omitted.]
[30] Further, judges must consider whether proceeding by way of summary judgment is in fact the most timely, affordable and proportionate means of dealing with the parties’ issues. For instance, if granting a motion for summary judgment will still require other substantive issues to be addressed at trial, the courts must consider the possibility of duplicated efforts and conflicting results. These possible outcomes were discussed by Madame Justice Karakatsanis in Hryniak, at para. 60:
The “interest of justice” inquiry goes further, and also considers the consequences of the motion in the context of the litigation as a whole. For example, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice.
[31] The issues of granting motions for summary judgment without considering the “litigation as a whole” has also been addressed by the Court of Appeal for Ontario in Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450. Mr. Justice Lauwers warned that a motions judge risks causing “inconsistent findings and substantive injustice” when he or she decides to summarily address one matter, while leaving another related matter to be decided at trial: see Baywood Homes Partnership, at para. 37.
[32] Accordingly, this present matter is not an appropriate case for summary judgment.
[33] Awarding summary judgment to either of the moving parties will reduce neither costs, nor trial time. Other issues will still proceed to trial, invariably resulting in a judge reconsidering the same facts and issues with which this motion is concerned. For example, regardless of the outcome of these motions, the court will be required to consider the breach of trust claim, as well as the claim for slander and defamation. The courts will also have to consider a second statement of claim against Mr. Hacio (issued in October 2013) seeking approximately $1.8 million for work in progress and disbursements that the claim alleges Mr. Hacio took with him when he withdrew from Erickson & Partners.
[34] There is also a real risk of the parties taking conflicting positions, and there is thus a risk of conflicting decisions. For example, on this motion, the defendants to the counterclaim maintained that Erickson & Partners and Southcourt Management Services should be treated as an integrated economic unit. The counterclaim plaintiffs disagreed by relying upon the December 2013 decision of Wright J. At the motion before Wright J. in December 2013, the parties’ positions on this issue were reversed. This reversal resulted in the parties disagreeing on this motion about the interpretation and importance of Wright J.’s decision.
Remaining Seized of the Matter
[35] Even though I am disallowing these motions, Karakatsanis J. also noted in Hryniak, at paras. 74-79, that failed summary judgment motions may still be used to reduce the overall cost and time needed to resolve litigation.
[36] For instance, where a motions judge dismisses a motion for summary judgment, in the absence of compelling reasons to the contrary, the judge should remain seized of the matter as the trial judge: see Hryniak, para. 78.
[37] In addition to the guidance provided by the Supreme Court of Canada, a judge from outside the Northwest Region is required to hear this matter.
[38] Accordingly, I have decided to seize myself with this matter.
[39] Both motions for summary judgment are dismissed. In a sense, both sides were successful. Accordingly, there will be no order concerning costs.
MARROCCO A.C.J.S.C.
Released: 20150821
CITATION: Arnone et al. v. Hacio et al., 2015 ONSC 5266
COURT FILE NO.: CV-11-0450
DATE: 20150821
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GINO L. ARNONE PROFESSIONAL CORPORATION, KENNETH E. ERICKSON PROFESSIONAL CORPORATION AND ROBERT E. SOMERLEIGH PROFESSIONAL CORPORATION, C.O.B. IN PARTNERSHIP AS ERICKSON & PARTNERS
Plaintiffs
– and –
CHRISTOPHER D.J. HACIO AND CHRISTOPHER D.J. HACIO PROFESSIONAL CORPORATION
Defendants
REASONS FOR JUDGMENT
MARROCCO A.C.J.S.C.
Released: 20150821