ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 12-38666
DATE: 2015-08-31
B E T W E E N:
C.M. Takacs Holdings Corporation, C.M. Takacs Restaurants Inc., Charles Takacs and Deborah Takacs
Kevin A. MacDonald, for the Plaintiffs in First Stage of Motion
Orie Niedzviecki, for the Plaintiffs in Second Stage of Motion
Plaintiffs
- and -
122164 Canada Limited o/a New York Fries and Warren Price
Ian A. Johncox and Brandon McBride, for the Moving Defendants
Defendants
HEARD: August 20, 2013, February 4, 5 and 6, 2014, June 30, 2014, August 19, 2014, and June 17 and 18, 2015
REASONS FOR RULING
PARAYESKI, J.
[1] The defendants move for summary judgment in respect of both the plaintiffs’ action and the counterclaim.
[2] The parties have had a long history of difficult litigation between them. It has gone on for years with no real benefit accruing to either side. I shall not summarize the tortured courtroom saga here.
[3] Some basic history is necessary, however. In June of 2010, the corporate plaintiffs were the franchisees of four New York Fries franchises offered by the corporate defendant. The individual plaintiffs were the principals of the plaintiff corporations, and the individual defendant was the executive vice-president of the corporate defendant. The business relationship had gone back for decades.
[4] On June 10th, 2010, the corporate defendant terminated the four franchise agreements and the subleases under which the franchisees occupied the mall spaces at which the businesses were run. The terminations were without notice. The businesses were then run as corporate stores by the corporate defendant.
[5] The defendants justify the terminations on the basis of the franchise having been in serious default across the four operations. While the plaintiffs may dispute the precise figures involved, they do acknowledge being in arrears in respect of multiple obligations to the extent of approximately $500,000.00. These include:
Unpaid rent;
Executions registered with respect to both provincial sales tax and WSIB premiums;
Arrears of PST and GST;
Unpaid source-deducted income tax funds;
Unpaid suppliers; and
No 2009 income tax filings for either corporate plaintiff.
[6] Each of the relevant franchise agreements permitted termination without notice upon the franchisee committing an act of bankruptcy. It is widely accepted that not meeting obligations generally as they become due is an act of bankruptcy. These defaults, on this scale, were, in my view, acts of bankruptcy.
[7] Despite this, the plaintiffs chose to take an aggressive stance, and have sued the defendants. The breadth of their claims is significant, and appears to have been limited only by the imagination of counsel. I accept, however, as a fair summary of the articulated claims, paragraph 37 of the defendants’ factum. It lists 11 issues.
[8] I also accept as reasonable the defendants’ submission that it is unnecessary to parse every articulated issue at length in order to fairly adjudicate upon this motion. Instead, I shall focus upon what I see as the crucial issues. To some extent, they blend the points raised in the motion materials and in argument. They are:
Whether notice of the terminations was required;
Whether there were breaches of the good faith duty that arises under the provisions of the Arthur Wishart Act; and
Whether the plaintiffs have cogent evidence of damages.
[9] As mentioned above, the franchise agreements did not require the franchisor to provide notice of termination in the event of an act or acts of bankruptcy. However, the plaintiffs argue that:
i) The subleases, which were terminated together with the franchise agreements, do call for formal notice;
ii) That on prior occasions of default, the franchisor had given notices to rectify, thus raising the possible issue of estoppel; and
iii) That the franchisor’s duty to treat franchisees with good faith in and of itself gives rise to a notice requirement.
[10] While I agree that the subleases do appear to require notice, they are very much of secondary importance in the circumstances that existed here. The estoppel argument is successfully responded to by the fact that the franchise agreements contain non-waiver clauses which, by definition, seek to preclude estoppel and that the breaches in question were cumulatively much more significant than the prior ones. Their very scale makes them meaningfully different. Although I recognize the duty of fair treatment under the Arthur Wishart Act, I do not accept the submission that, in the context of this case, a notice requirement arises because of it. The franchisees were very experienced in the field. The defaults were such that the plaintiffs cannot be said to have been unaware of them. The defaults did not arise overnight. Some of them entailed not remitting taxes that had been collected from others. Moreover, there is no evidence before me that notice likely would have made a material difference. The plaintiffs have presented no evidence of their financial ability to rectify anything.
[11] I have already touched upon the possible effect an application of the Arthur Wishart Act in these circumstances. The franchisees were sophisticated business entities with many years of experience in the subject business. There is no suggestion that they misunderstood the franchise agreements. I disbelieve the assertion that the plaintiffs were somehow materially misled by the defendants in respect of the cost to relocate their operation within one of the malls in question. The suggestion that the cost differential of which they complain is meaningfully responsible for over $500,000.00 in defaults is patently nonsensical. The Arthur Wishart Act does not automatically mandate either the deletion or addition of contractual terms which years worth of hindsight indicate the franchisee might now find convenient. Context is important.
[12] Even in the event that I am in error with respect to the liability issues I have addressed (or that there are liability issues requiring a trial which I have not addressed), the plaintiffs’ case is still fatally flawed from the perspective of damages.
[13] Even a perfect liability case must fail on a motion for summary judgment if the plaintiff cannot provide cogent evidence that damages have been suffered. Both elements are essential.
[14] The thrust, although not the entirety, of the plaintiffs’ case is that they incurred damages, in the form of lost profits, when the franchisor terminated the franchise agreements and took over their businesses. To prove such damages, the plaintiffs must show that the businesses taken were profitable in first instance. In the face of a summary judgment motion where the issue of proof of damages has been plainly raised, the plaintiffs have still not produced such rudimentary documentary evidence of profitability as balance sheets, profit and loss statements, income tax returns or notices of assessment for any of the franchises. It is not good enough in these circumstances to reply upon pleadings, or to give unsubstantiated and speculative answers made during cross-examinations upon affidavits, or to say, in effect, let us see what comes out at trial. We are now more than five years post-incident. I infer that either the plaintiffs cannot produce the kinds of documents listed above, or that those documents do not substantiate the claim for lost profits.
[15] In sum, I am of the view that the plaintiffs’ action cannot succeed from either the perspective of liability or that of damages. I believe that I have sufficient evidence before me to appreciate the issues and to adjudicate upon them such that a fair result can be had at this stage. The defendants’ summary judgment motion to dismiss the plaintiffs’ action is granted.
[16] I turn now to the defendants’ counterclaim. It is only mentioned in passing in the defendants’ factum and was the subject of only a very small part of oral argument. Nonetheless, I understand that the thrust of the counterclaim is as follows: when the corporate defendant took over the four franchises as described above, it had to pay out some of the defaults incurred by the corporate plaintiffs in order to carry on with operations. Set off against those necessary payments would be the value of anything belonging to the plaintiffs that was taken in the course of the seizures.
[17] It appears that almost everything about the counterclaim is the subject of disagreement. This includes the value of any equipment seized and the amount of cash in the tills when the takeovers occurred. The seizures were videotaped in an effort to document the process, but the tapes or discs have been lost. This opens the issue of spoliation of evidence.
[18] Based upon the limited evidence that is before me relative to the counterclaim, it seems that there are issues that would require a trial to allow for proper adjudication. I leave the practicality of pursuing the counterclaim now that the “main” action has been dismissed up to counsel and the parties. The summary judgment motion in respect of the counterclaim is dismissed.
[19] I am not seized of the trial of the counterclaim. I decline to be so seized because scheduling across this region is such that it cannot accommodate that happening. My being seized of the trial of the counterclaim would likely result in its being significantly delayed. Moreover, given the paucity of the evidence on the counterclaim before me, there would be little or no efficiency to be gained by means of me being seized of the trial.
[20] If counsel cannot agree upon costs of the motion, they may make brief written submissions to me in regard of the same. Each set of such submissions, if any, shall be no more than three typewritten pages in length, not including a costs outline. The defendants’ submissions with respect to costs are to be submitted not later than September 30th, 2015, with the plaintiffs’ submissions on costs being due on or before October 15th, 2015. Any such submissions should be forwarded to me at the John Sopinka Courthouse at Hamilton.
PARAYESKI, J.
Released: August 31, 2015
COURT FILE NO.: 12-38666
DATE: 2015-08-31
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
C.M. Takacs Holdings Corporation, C.M. Takacs Restaurants Inc., Charles Takacs and Deborah Takacs
Plaintiffs
- and –
122164 Canada Limited o/a New York Fries and Warren Price
Defendants
REASONS FOR RULING
MDP:co
Released: August 31, 2015