Amicus Syntax Software Inc. v. Todd Brown et al, 2016 ONSC 407

CITATION: Amicus Syntax Software Inc. v. Todd Brown et al, 2016 ONSC 407

COURT FILE NO.: CV-15-531289

DATE: 20160202

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Fortunato LaRosa, in the name and on behalf of Amicus Syntax Software Inc., Applicant

AND:

Todd Brown and Gary Brusanowski, Respondents

BEFORE: Madam Justice Stewart

COUNSEL: Clarke Tedesco and Natalia Vandervoort, for the Applicant Nick Porco, for the Respondent Todd Brown

HEARD: September 24, 2015

ENDORSEMENT

Nature of the Application

[1] Fortunato LaRosa applies pursuant to s. 246 of the Business Corporations Act, R.S.O. 1990, CB16 (the “Act”) and Rules 14 and 38 of the Rules of Civil Procedure for leave to commence a derivative action on behalf of Amicus Syntax Software Inc., a corporation of which he is one of three directors, to seek remedies as a result of the alleged wrongful conduct of Todd Brown and Gary Brusanowski.

[2] Brown takes the position that this is not a proper case for the granting of leave as sought. Among other things, he submits that LaRosa’s claim is personal and, as such, should be addressed by pursuing an oppression remedy under the Act.

[3] Brusanowski has not responded to this application.

Background and Facts

[4] The proposed action relates to allegations that Brown and Brusanowski, in the course of exercising their powers as the other two directors of Amicus, breached their fiduciary duties to Amicus by misappropriating and diverting corporate assets and revenues to Brown’s company, Rover Practice Management Inc. (“Rover”) and improperly withdrawing funds from Amicus for their own personal use and/or for the use by Rover or Brown’s other company, Mavericks Legal Services Professional Corporation (“Mavericks”).

[5] As a result of this alleged wrongful conduct, La Rosa claims that Amicus has been stripped of its assets and revenues and has been unable to continue its business operations, thereby suffering damages.

[6] LaRosa argues that the proposed action is in the best interests of Amicus in that an arguable case has been disclosed that, if successful, will compensate Amicus for the losses it has sustained as a result of this conduct. He depicts the proposed action as a good faith attempt on his part, as a director of Amicus, to right the alleged wrongs inflicted upon Amicus by Brown and Brusanowski.

[7] LaRosa and Brown are paralegals licensed with the Law Society of Upper Canada. They were business partners in a paralegal business from 1992 until 2014 called Redline Legal Services Professional Corporation (“Redline”).

[8] Brusanowski is a software developer who was hired to assist with the technical development of practice management software for Redline, which eventually became “Law Dog”. There is no dispute that the development of Law Dog was funded by Redline, using an initial loan obtained from LaRosa’s brother.

[9] In or about July 2007, the development of Law Dog was completed and it began to be used by Redline.

[10] On April 16, 2009, Amicus was incorporated as a corporate vehicle to license Law Dog to third parties and to receive licensing fees for doing so. Law Dog was the sole asset of Amicus at the time of its incorporation. La Rosa, Brown and Brusanowski were appointed directors of Amicus, an office each of them continues to hold.

[11] Brusanowski’s data management company, Utopian Inc. (“Utopian”), developed modules for Redline’s practice management software and retained all ownership over these modules. Utopian’s proposal document, “Redline Legal Services FileMaker Database System Final Proposal”, acknowledges that “the customized Redline system belongs to Redline alone and [Utopian} will, under no circumstances, sell a copy of it or cause it to be released to any other party…” LaRosa relies on that document, among other things, to support Amicus’ potential claim.

[12] After incorporation, Brown and Brusanowski started working on developing Law Dog into a more complete file management software for Amicus. Redline and Amicus primarily funded the development. The updated version of Law Dog was completed in late 2012 and was renamed as the Rover Practice Management Software (the “Rover Software”).

[13] On April 24, 2013, Brown incorporated Rover. In July 2013, Brown directed the Rover Software to be licensed through Rover, and not Amicus. Thereafter, Rover started to receive all licensing fees. LaRosa alleges this was done improperly, and carried out without his knowledge or authorization as a director of Amicus.

[14] LaRosa alleges that Brown also started to instruct existing Amicus clients who had subscriptions to Law Dog to direct their licensing fees to Rover, and not Amicus, thus divesting Amicus of revenue.

[15] Brown’s incorporation of Rover and alleged misappropriation of the Rover Software coincided with the breakdown of the relationship between LaRosa and Brown as partners of their paralegal business at Redline. On June 13, 2014, Brown incorporated Mavericks, a company carrying on business in competition with Redline.

[16] In response, Brown claims that LaRosa wanted no part in the development of the Rover Software and that LaRosa implicitly agreed that the Rover Software could be developed by Brown and Brusanowski for Rover as a separate entity from Amicus. Brown asserts that they all decided that Law Dog clients could be migrated to Rover. This allegation is strenuously disputed by LaRosa, who noted in argument that Brown has not produced any documentation to support these assertions.

Issue

[17] Should leave to commence a derivative action be granted?

Law and Discussion

[18] Leave to bring a derivative action can be granted if the following statutory requirements are satisfied:

(a) the applicant is a complainant within the meaning of section 245 of the Business Corporations Act, RSO 1990, c B 16 (“OBCA”);

(b) the directors of the corporation were provided with notice of 14 days of the applicant’s intention to apply to the court to seek leave;

(c) the directors of the corporation will not bring or diligently prosecute the action;

(d) the complainant is acting in good faith; and

(e) it appears to be in the best interests of the corporation that the action be brought.

[19] The statutory requirements for leave to bring a derivative action are to be given a liberal interpretation in favour of the complainant (see: Richardson Greenshields of Canada Ltd. v. Kalmacoff (1995), 1995 CanLII 1739 (ON CA), 22 O.R. (3rd) 577 (C.A.)).

[20] It is not disputed by Brown that LaRosa has standing as a complainant under s.245 (b) of the Business Corporations Act and that he also has satisfied the statutory notice requirements.

[21] It is evident from the nature of the allegations that the directors of Amicus will not bring the proposed action or authorize LaRosa to do so. Further, the details of the nature of the proposed action provided by LaRosa satisfy the requirement that the proposed action appears to be in Amicus’ best interests. The evidence presented in this application demonstrates the existence of an arguable case on the merits. At this stage, it is not necessary for the court to determine issues of credibility or resolve all issues in dispute (see: Richardson Greenshields of Canada Ltd. v. Kalmacoff, supra.)

[22] Brown’s primary argument is that the claim is personal to LaRosa and, as such, should be addressed by way of an oppression remedy. He argues that LaRosa is not acting in good faith and that it is not in the interests of the corporation that the action be brought.

[23] The development of these two forms of statutory redress – oppression remedy and derivative action – was recently reviewed by the Court of Appeal for Ontario (see: Rea v. Wildeboer (2015) ONCA 573). In the Court of Appeal’s review, it was observed that these two forms of redress frequently intersect. A wrongful act may be harmful to both the corporation and the personal interests of a complainant. As a result, there has been considerable debate in the authorities as to the distinction between the two remedies.

[24] Claims must be pursued by way of a derivative action, after obtaining leave of the court, where the claim asserted seeks to recover solely for wrongs done to a corporation, the thrust of the relief sought is solely for the benefit of that corporation, and there is no allegation that the complainant’s individualized personal interests have been affected by the wrongful conduct (see: Rea v. Wildeboer, supra.)

[25] In this case, the conduct of Brown and Brusanowski is alleged to have caused damages to the corporation. Although LaRosa is a shareholder of Amicus, he does not allege that he had any personal, individual ownership interest in the Rover Software or in the funds allegedly misappropriated. Rather, the proposed action seeks a constructive trust in favour of Amicus and/or damages to be paid to Amicus.

[26] In my view, the requirements for the granting of leave have been fulfilled in this case. LaRosa has shown that he is acting in good faith by seeking to bring the action in the honest belief that there is an arguable claim to redress wrongs done to the corporation. His personal interests are not engaged by the allegations or the relief sought.

Conclusion

[27] For these reasons, the leave sought is hereby granted. Orders shall issue granting leave under s. 246 of the Act to commence a derivative action in the name and on behalf of Amicus and under s. 247(a) of the Act authorizing LaRosa to control the conduct of the proposed action.

Costs

[28] If the parties cannot resolve the issue of costs, written submissions may be delivered on behalf of the Applicant within 20 days and by the Respondent within 15 days thereafter.

Stewart, J.

Date: February 2, 2016