ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-14-515989
DATE: 20151130
BETWEEN:
COAST TO COAST AGAINST CANCER
Plaintiff
– and –
STEVEN H. SOKOLOWSKI,
THE COURTYARD GROUP OF COMPANIES INC., SHERRY AZIM (in her personal capacity and in her corporate capacity, o/a COMPLETE BUSINESS SOLUTIONS) and PHILIPPA L. HERRINGTON (in her personal capacity and in her corporate capacity, o/a HERRINGTON ASSOCIATES)
Defendants
Kirsten A. Thoreson, for the plaintiff
Steven H. Sokolowski, self-represented
HEARD: November 23, 2015
ENDORSEMENT
Diamond J.:
Overview
[1] The plaintiff Coast to Coast Against Cancer (“Coast”) is a not-for-profit corporation. Coast is a registered charity which raises funding for childhood cancer charities that improve the quality of life and survival rate of children impacted by cancer.
[2] The defendant Steven H. Sokolowski (“Sokolowski”) was one of Coast’s original founders, and for many years was a member of its board of directors. In his last two years with Coast, Sokolowski’s original role as Secretary expanded so that he was essentially responsible for coordinating Coast’s day-to-day business.
[3] Sokolowski is also the sole officer and director of the defendant The Courtyard Group of Companies Inc. (“Courtyard”), a company incorporated pursuant to the laws of Ontario.
[4] Commencing in or around August 2014, an internal audit of Coast revealed that Sokolowski, with the assistance of Courtyard and other defendants, had allegedly carried out an extensive fraud and misappropriation of funds from Coast in a total amount exceeding $700,000.00. Sokolowski was suspended from his position with Coast, and thereafter dismissed.
[5] On November 20, 2014, Justice Chiappetta granted Coast’s ex parte motion for a Mareva injunction against Sokolowski. Justice Chiappetta’s order was extended until trial by Justice Brown on November 28, 2014.
[6] On October 19, 2015, Coast brought a motion for summary judgment before me. On that date, Sokolowski appeared in person as his counsel had recently been removed from the record. I granted Sokolowski’s request for a brief adjournment for the purpose of enabling him to seek further legal representation and deliver responding materials. I found that a brief adjournment would cause little prejudice to Coast as the Mareva injunction remained in place.
[7] On or about November 3, 2015, Sokolowski served and filed his responding materials. He was thereafter cross-examined upon his affidavit and Coast’s motion for summary judgment proceeded before me on November 23, 2015.
Summary Judgment
[8] Rule 20.04(2)(a) of the Rules of Civil Procedure now provides that the Court shall grant summary judgment if the Court is satisfied that “there is no genuine issue requiring a trial with respect to a claim or defence”. As a result of the amendments to Rule 20 introduced in 2010, the powers of the Court to grant summary judgment have been enhanced to include, inter alia, weighing the evidence, evaluating the credibility of a deponent and drawing any reasonable inference from the evidence.
[9] In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada established a road map in terms of how a motions judge should approach a motion for summary judgment. The Court must first determine whether there is a genuine issue requiring a trial based only upon the evidence filed with the Court and without using the new fact finding powers set out in the 2010 amendments. Summary judgment will thus be available if there is sufficient evidence to justly and fairly adjudicate the dispute, with the motion being an affordable, timely and proportionate procedure.
[10] If the Court finds the presence of a genuine issue requiring a trial, the motions judge must then determine if the need for a trial can be avoided by using the new, enhanced powers under Rules 20.04(2.1) and (2.2).
[11] It is important to remember that the applicable evidentiary principles developed under the previous incarnation of Rule 20.04 continue to apply. The motions judge must still take a “hard look” at the evidence to determine whether it raises a genuine issue requiring a trial, and as a result each party must still put its “best foot forward” and submit cogent and compelling evidence to support or oppose the relief sought. A moving party has both a legal and evidentiary onus to satisfy the Court that there is no genuine issue requiring a trial. It is the moving party’s obligation to present a record that can enable the Court to avail itself of the enhanced powers under Rule 20.04 if the record warrants the exercise of such discretion.
[12] In my view, summary judgment is a just and proportionate outcome for the parties. On the record before me, I am confident that I can find the necessary facts and apply the relevant law to the evidence, and that it is in the interests of expedient, affordable and proportionate justice to proceed as such.
Decision
[13] As Coast’s founding member, director and Secretary, Sokolowski stood in a fiduciary position and was thus bestowed with fiduciary duties to act in Coast’s best interests. It does not appear that Sokolowski disputes this position.
[14] Coast’s claims are based in fraud and breach of fiduciary duty for what it alleges is an extensive scheme on the part of Sokolowski to misappropriate funds from Coast through the creation and submission of false invoices, and the preparation and cashing of Coast’s cheques to Sokolowski, Courtyard or other defendants for Sokolowski’s personal use.
[15] Coast submits that Sokolowski would submit improper and unauthorized expenses to Coast for reimbursement. Those expenses were submitted either as invoices to be paid directly to third party vendors for Sokolowski’s personal expenses, or as part of expense reports for reimbursement to Sokolowski or Courtyard.
[16] Coast was put through the time and expense of retaining Deloitte LLP to prepare an internal audit investigation of all questionable Sokolowski-related transactions identified in Coast’s financial records. I have reviewed the Deloitte report. Counsel for Coast has prepared a chart at paragraph 12 of Coast’s factum setting out the various categories of alleged unauthorized expenses and charges carried out at the hands of Sokolowski.
[17] Simply put, the evidence is overwhelming in support of Coast’s position, and I find that Sokolowski did indeed misappropriate the funds identified by Coast in its motion materials. I therefore grant Coast’s summary judgment against Sokolowski for fraud and breach of fiduciary duty in the total amount of $697,237.00 plus pre-judgment interest as claimed in Coast’s Statement of Claim.
[18] I will briefly address my findings as they relate to the various categories of unauthorized expenses as follows:
(a) Sherry Azim
[19] The defendant Sherry Azim (“Azim”) was romantically involved with Sokolowski at a time when Sokolowski approved a series of unauthorized payments by Coast to Azim and her corporate persona, the defendant Complete Business Solutions (“Complete”). It is Coast’s position that the payments to Azim and Complete were for services that were never performed for Coast. Those payments total $31,425.00.
[20] In her Statement of Defence, Azim advanced a bald denial of the allegations in Coast’s Statement of Claim. However, as part and parcel of an apparent plea bargain in related criminal proceedings commenced against Azim, she agreed to make restitutionary payments and has in fact returned the sum of $28,000.00 to Coast leaving a small outstanding balance which Coast has agreed to waive for the purpose of this motion for summary judgment against Sokolowski.
[21] In his responding submissions, Sokolowski stated that the reason behind Azim’s plea bargain and restitutionary payments was simply to “exit” the criminal proceedings, and did not amount to any admission of liability or wrongdoing on her part (or by extension, on his part). There is no evidence whatsoever from Azim in Sokolowski’s responding motion record.
[22] While Coast has already been repaid most of the sum it claims was misappropriated by Sokolowski to Azim, I nevertheless find that these payments made to Azim and/or Complete were unauthorized and part of Sokolowski’s scheme.
(b) Philippa L. Herrington
[23] The defendant Philippa L. Herrington (“Herrington”) is Sokolowski’s current girlfriend. E-mails produced by Coast evidence a personal relationship dating as far back as 2012.
[24] Sokolowski prepared a series of invoices using the header “Herrington Associates”, submitted those invoices to Coast and then authorized payments to Herrington Associates. There is no entity known as Herrington Associates, and in Herrington’s Statement of Defence she disavows any knowledge of the preparation and submission of these invoices.
[25] None of these invoices provide an HST registration number. Currently, Herrington promotes herself online as an artist and yoga instructor, although Sokolowski submits that at the relevant time Herrington designed and produced videos and website creation/management services for Coast.
[26] These services, which I do not believe in fact occurred, allegedly took place in 2012. The false Herrington Associates invoices were created and submitted in 2014.
[27] I find that Sokolowski is liable for the misappropriation of $107,424.00 being the total amount of the Herrington Associates’ invoices.
(c) Elian Ibaj
[28] Sokolowski purported to pay invoices from Elian Ibaj (“Elian”) for web services, and then submitted his expenses for reimbursement from Coast resulting in payments totaling $84,246.00.
[29] A review of Coast’s materials discloses that Elian only ever rendered one invoice to Coast for work done on its website totaling approximately $1,500.00 USD.
[30] On cross-examination, Sokolowski admitted that the Elian expenses were not properly submitted to or incurred by Coast. In fact, Sokolowski admitted to altering Elian’s original invoice to create a series of false invoices purporting to justify the expenses Sokolowski submitted to Coast.
[31] I find Sokolowski liable for the misappropriation of $84,246.00 being the total he submitted to Coast for reimbursement of alleged Elian expenses.
(d) Royal Canadian Yacht Club (“RCYC”)
[32] Sokolowski arranged for Coast to remit payment to RCYC in the amount of $21,152.00. At no time did Coast ever host or otherwise involve itself with any purported event which took place at RCYC. In fact, it was Sokolowski who hosted a personal event at RCYC and used Coast funds to pay for it.
[33] There is nothing in Sokolowski’s responding materials which responds to Coast’s claims for the RCYC expenses. On cross-examination, Sokolowski confirmed that Coast never held any event at RCYC, and RCYC never provided any services to Coast.
[34] I find Sokolowski liable for the misappropriation of $21,152.00 paid to RCYC.
(e) Metro News
[35] All of Coast’s advertising in Metro News was provided as in-kind sponsorship at no charge to Coast. There is evidence that no money was ever exchanged between Metro News and Coast for the purpose of advertising services.
[36] Nevertheless, Sokolowski purported to incur expenses from Metro News for advertising costs, and then submitted his expense reports for reimbursement of those purported costs resulting in Coast paying Sokolowski and/or Courtyard the sum of $90,355.00
[37] I have reviewed the relevant documents produced by Coast in its motion materials. The invoices relied upon by Sokolowski appear to have been doctored. Somehow, the invoices and statements from Metro News also contain the Coast logo, and do not contain any HST registration number.
[38] On cross-examination, Sokolowski admitted that the Metro News expenses were “unwarranted”, and must have been the result of “inadvertent errors or bad accounting”. I do not accept this purported explanation, and find Sokolowski liable for the misappropriation of the $90,355.00 wrongfully charged to Coast for purported Metro News invoices.
(f) Switch WP
[39] Much like Elian’s expenses, Sokolowski purported to pay charges incurred from Switch WP for web services to Coast, and then submitted those expenses for reimbursement from Coast. The total amount of Coast’s cheques paid to and cashed by Sokolowski and/or Courtyard was $76,696.00.
[40] At most, Switch WP delivered a quotation to Coast for the provision of web services. Ironically, Coast found Switch WP’s quotation to be too high and never retained Switch WP for any services. Once again, false invoices were created and submitted by Sokolowski to make it appear as though he incurred charges with Switch WP. He thereafter used the payments from Coast for alleged reimbursement for his own benefit.
[41] I find Sokolowski liable for the misappropriation of the $76,696.00 wrongfully charged to Coast for purported Switch WP charges.
(g) 119 Manning Avenue
[42] Sokolowski and Herrington reside at 119 Manning Avenue. They rent the property from the landlord 119 Manning Avenue Holdings Inc. Through Coast investigation, it was discovered that Sokolowski (without any contribution from Herrington) remits payment of monthly rent to his landlord in the amount of $3,650.00.
[43] Sokolowski directed Coast to write and deliver post-dated cheques from August 2014 – May 2015 in relation to so-called “leased space” at the Manning property. According to Sokolowski, he was “storing materials for Coast” at his residence and thought that Coast shouls pay for this service.
[44] The invoices supporting these payments from Coast are fabricated. These invoices are addressed to both Sokolowski and Coast, and are for the sum of $3,650.00, i.e., the exact amount of rent Sokolowski must pay every month to lease the entire property.
[45] If Coast was leasing any space at the Manning property, the lease would be between Coast and the landlord. There is no “sub-lease” between Sokolowski and Coast.
[46] I find Sokolowski liable for the misappropriation of the sum of $10,657.00 for unauthorized rental payments for his personal residence.
(h) Halpern Enterprises
[47] Halpern Enterprises (“Halpern”) is a third party supplier of wine and alcohol. While Coast does provide alcohol at certain funding raising events, most of the alcohol is donated as in-kind sponsorship from vendors. There is no business relationship between Halpern and Coast.
[48] Sokolowski directed Coast to remit payment of purported Halpern invoices totaling $15,055.00. Sokolowski expensed these Halpern charges and received the payments directly from Coast.
[49] Once again, Sokolowski created false invoices to carry out this fraud. It is clear from the documentation produced from Coast that the Halpern logo used on its real invoices is completely different from the Halpern logo on the invoices submitted by Sokolowski to Coast. The logo and artwork on the false invoices is clearly lifted from Halpern’s website.
[50] The alcohol was either used by Sokolowski at the RCYC event, or for his personal use as he did confirm under cross-examination that one of his few remaining assets is a wine collection.
[51] I find Sokolowski liable for the misappropriation of $15,055.00 in expenses wrongfully charged to Coast for purported Halpern invoices.
(i) TSC Storage
[52] These expenses totaling $37,277.00 were admitted by Sokolowski on cross-examination to have been misappropriated from Coast. I thus find Sokolowski liable for the misappropriation of the sum of $37,277.00 for unauthorized TSC Storage expenses.
(j) Additional Miscellaneous Expenses
[53] There are a series of additional expenses which Coast claims to be unauthorized and part of Sokolowski’s overall scheme. These expenses relate to, inter alia, hotel receipts, electronics, meals, entertainment, marketing, gas/vehicle and insurance charges.
[54] These miscellaneous expenses total approximately $318,000.00. Of that sum, through Coast’s investigation and Sokolowski’s cross-examination I am satisfied that $163,000.00 was misappropriated by Sokolowski. With respect to the balance of approximately $155,000.00, the Deloitte report identifies these expenses to be, at a minimum, questionable and unsupported by any documentation. Sokolowski did not produce any evidence to support the legitimacy of those expenses, other than (arguably) offering a bald denial.
[55] In cases where fraud or breach of fiduciary duty is found, and the moving party has exerted reasonable efforts to investigate and determine the quantum of its loss, the court will not require exacting proof of the precise loss amount. As held by Justice Lang (as she then was) in 3Com Corp.v. Intelligent Decisions Inc., [2004] O.J. No. 2348 (S.C.J.):
“On the other hand, once fraud is shown, the court will not require proof of the precise loss where the plaintiff makes reasonable efforts to establish quantum. Rather, the onus is on the defendant who has been found to have acted fraudulently to disapprove the claimed loss.”
[56] I find that Coast has done its best to establish a fair and accurate quantum of its damages carried out at the hands of Sokolowski. Coast has established a clear pattern of Sokolowski abusing his fiduciary position by submitting false expense claims, and manufacturing false invoices. Coast has provided and used the best evidence available to it, including the Deloitte report, and employed a “reasonable and fair approach” to quantification as that term was used by Justice Moore in Navrab Investments Inc. v. Vaidyan 2012 ONSC 6844 (S.C.J.).
[57] As such, the onus of proving the legitimacy of the $155,000.00 in questionable expenses shifted to Sokolowski. I find that Sokolowski has not discharged that onus, and he is liable for the full $318,000.00 for the misappropriation of the miscellaneous expenses.
[58] In summary, I declare Sokolowski to be liable for the torts of fraud and breach of fiduciary duty, and order him to repay Coast damages in the total sum of $697,237.00.
Costs
[59] I would urge the parties to resolve the costs of this motion. If such efforts prove unsuccessful, Coast may serve and file written costs submissions (totaling no more than 4 pages including a Costs Outline) with 10 business days of the release of this decision.
[60] Sokolowski shall thereafter serve and file his responding costs submissions (also totaling no more than 4 pages including a Costs Outline) within 10 business days of the receipt of Coast’s costs submissions.
Diamond J.
Released: November 30, 2015
COURT FILE NO.: CV-14-515989
DATE: 20151130
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
COAST TO COAST AGAINST CANCER
Plaintiff
– and –
STEVEN H. SOKOLOWSKI,
THE COURTYARD GROUP OF COMPANIES INC., SHERRY AZIM (in her personal capacity and in her corporate capacity, o/a COMPLETE BUSINESS SOLUTIONS) and PHILIPPA L. HERRINGTON (in her personal capacity and in her corporate capacity, o/a HERRINGTON ASSOCIATES)
Defendants
ENDORSEMENT
Diamond J.
Released: November 30, 2015