Court File and Parties

COURT FILE NO.: 16-58436 DATE: 2016/08/19

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Electromart (Ontario) Inc., Plaintiff A N D: John Henry Fabianiak, Penny Ann Graziotto and Current Electrical Supply Inc., Defendants

BEFORE: The Honourable Mr. Justice R. J. Harper

COUNSEL: A. Douglas Burns and S. J. Gill, for the Plaintiff

HEARD: August 18, 2016

E N D O R S E M E N T

Issues

[1] This is an ex parte motion for a number of extraordinary requests for relief including:

a. A Mareva injunction; b. A Norwich order; c. A certificate of pending litigation; d. The delivery up of computers, Smartphones and tablets belonging to the defendants for the purposes of copying all data relevant to the issues of fraud. The plaintiff alleges that it was defrauded of substantial amounts of money by the defendants.

[2] This matter is a prime example of a litigant coming to court with massive amounts of material and counsel for that litigant setting the matter down inappropriately on the regular motions list instead of seeking a proper time allotment on the long motions list. The fact that the motion is ex parte does not excuse this conduct.

[3] The relief that is sought is extreme. The complexity of the law and the facts when taken together with the relief requested cries out for a reasoned and thorough approach. I heard the matter despite the shortcomings in the manner in which this came before me. Once I reviewed the factum and heard submissions of counsel, it was my view that some relief was necessary under the circumstances.

Background

[4] The defendants are two former employees of the plaintiff, who operates a business of distributing and wholesaling of electrical supplies to contractors.

[5] The defendant, John Henry Fabianiak (“Fabianiak”), was the manager of one of the plaintiff’s stores in Guelph, Ontario. The defendant, Penny Ann Graziotto (“Graziotto”), was an employee of that Guelph store and according to the plaintiff, Fabianiak and Graziotto were also boyfriend and girlfriend.

[6] Fabianiak owns property located in Guelph and legally described as Lot 64, Plan 526; S/T MS23931 Guelph; PIN NO.: 71273-026 and municipally known as 37 Sleeman Ave., Guelph, Ontario.

[7] Graziotto owns property located in Guelph Ontario legally described as PT Lots 1 East Side Clarence Street & 2 East Side Clarence Street, Plan 18, as in CS43583: Guelph and municipally know as 167 Dufferin Street, Guelph, Ontario.

[8] On November 6, 2015, the defendants incorporated a company “Current Electrical Supply Inc”. This company was incorporated seven days after Fabianiak was terminated from his employment with the plaintiff and Graziotto quit her employment.

[9] The registered head office for Current Electrical Inc. is 167 Dufferin Street, Guelph, Ontario.

Alleged Fraud

[10] The plaintiff provided to the court substantial documentation that I find to be prima facie proof that both Fabianiak and Graziotto defrauded the plaintiff.

[11] As store manager, Fabianiak was bound to operate within the company’s policies and protocols. Among the policies and protocols, Fabianiak was required to keep proper books and records. The evidence discloses that there were multiple transactions not recorded. There were numerous “unreported sales’ that were demonstrated by both a comparison with the overall sales, invoices, recordings, bank records and emails. These transactions came to light after an extensive review of the “raw data” by the owners. The review was conducted as a result of numerous discrepancies that were discovered by the owners upon review of some of the transactions in the operation of the plaintiff’s business.

[12] The review is still underway; however, it was demonstrated in the evidence presented on this motion that over at least the last three years there appeared to be in excess of $300,000 in unexplained losses in profits and diversion of funds to the Defendants.

[13] The diversion of funds was discovered by the plaintiff by reviewing a number of data points. The plaintiff conducted a review and comparison of the inventory, the cost of inventory, and the calculation of usual gross markup. All of those measures demonstrated that substantial sums of money are not recorded and unaccounted for.

[14] In addition, the plaintiff confirmed that both Fabianiak and Graziotto were taking cash from customers of the plaintiff for their own use and selling products of the plaintiff and not recording the sales. Certain emails, filed as evidence, also demonstrated that the defendants were trading with customers for services and product and in providing work in kind with customers for their own benefit rather than recording the actual product purchase, sale and profit. One of the emails shown at Vol. 1 of the Motion Record, Tab B2, referred to an amount owing by a customer in the amount of $16,485 for a period that included January 1, 2013 to September 30 2015. However, a review of the records created by Fabianiak demonstrated that the records only showed an amount of $1,246 that was owing by that customer for that period. In addition, that same email indicated that from the $16,485 that was owing, the customer could deduct the $4,000 cash that was already paid. There was no record of $4,000 that was paid.

[15] The above are only some of the examples of what I find to be a prima facie case that has been made out by the plaintiff of the fraudulent activity demonstrated in the evidence on this ex parte motion. A prima facie case of fraud has been made out.

The Law and Analysis of Mareva Injunctions

[16] In Beca v. Spork, 2009 ONSC 20700, Turnbull J. set out the legal considerations for the granting of a Mareva injunction:

[9] The law relating to granting a mareva injunction in this province has been clearly articulated by the Ontario Court of Appeal in Chitel et al. v. Rothbart et al. (1982), 39 O.R. (2d) 513 (C.A.).

[10] In order to obtain a mareva injunction, the court must be satisfied that the plaintiff has a strong prima facie case. [1] The reasoning in Chittel, supra, was adopted by the Supreme court of Canada in Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2 at para. 30. This term has received various interpretations from the courts in Canada. In SLMsoft.com Inc. v. Rampart Securities Inc. (Trustee of), 2004 ONSC 6329, [2004] O. J. No. 3290 at para. 14, Ground J. applied the test that the plaintiff must show is it “clearly right” in its allegations or that “it is almost certain to succeed at trial”.

[11] Secondly, the court must be satisfied that there is a “real risk that the defendant is going to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law.” [2]

[17] In Sibley & Associates LP v. Ross, 2011 ONSC 2951, Justice Strathy, as he then was, described what courts attempt to do when considering whether to grant the remedy of Mareva injunction. Commencing at para. 62, he stated:

[62] From Chitel v. Rothbart to the present day, the law has sought to draw a fair balance between leaving the plaintiff with a "paper judgment" and the entitlement of the defendant to deal [page511] with his or her property until judgment has issued after a trial. In my respectful view, a plaintiff with a strong prima facie case of fraud should be in no more favoured position than, say, a plaintiff with a claim for libel, battery or spousal support. On the other hand, there may be circumstances of a particular fraud that give rise to a reasonable inference that the perpetrator will attempt to perfect the deception by making it impossible for the plaintiff to trace or recover the embezzled property. To this extent, it seems to me that cases of fraud may merit the special treatment they have received in the case law.

[18] [63] Rather than carve out an "exception" for fraud, however, it seems to me that in cases of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence, and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances. It is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house and has cleared out his bank accounts. It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff.

[19] The circumstances in the Sibley case are similar to this case. In Sibley, the defendant was an employee of Sibley in the accounting department. In the course of an audit it was discovered that unauthorized payments in the amount of at least $310,160.32 had been made to one of the defendants who did not appear on the payroll records nor as a service provider who was someone entitled to receive payments. The subsequent audit confirmed other discrepancies that demonstrated funds were diverted to the Defendants.

[20] With respect to the second element that has to be made out when considering the granting of a Mareva injunction, the moving party must demonstrate that there is a real risk that assets may be removed or dissipated without the granting of the injunction. I find that in this case there is no direct evidence of such a risk at this time. However, I do infer, given the evidence at this time, that the defendants have conducted themselves in such a manner over the last three years that has a primary focus of deception and diversion. On the untested evidence to date, I infer that there is a real risk that they will continue to conduct themselves in a manner that would place any of the assets they have out of the reach of the plaintiff.

[21] As a result of my findings, I grant the injunction requested in the terms set out in the motion request shown at paragraphs 1, 2 and 3 of schedule C of the moving party’s factum.

[22] This injunction is for a period of 10 days. The motion material and the order shall be served on the defendants and motion made returnable prior to the expiry of this order.

[23] I decline to grant any of the other relief requested without notice being given to the defendants. The plaintiff is at liberty to serve a copy of this order on any of the banking institutions; and until the return of this motion, any party served will have to govern themselves in accordance with the terms of this order.

[24] Costs are reserved to the motions judge.

Harper J.

DATE: August 19, 2016