Court File and Parties
COURT FILE NO.: CV-15-532577 DATE: 20160902 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Nuco Jewelry Products Inc. and R. Christopher Lux AND: Linda Judith Lynott
BEFORE: S.F. Dunphy, J.
COUNSEL: Sandra Dawe, for the Defendant/Moving Party Talia Gordner for the Plaintiff/Responding Party
HEARD: August 31, 2016
Endorsement
[1] The defendant moves for an order pursuant to Rule 21.01(3)(d) of the Rules of Civil Procedure striking out the claim as against her in its entirety on the basis that it is frivolous, vexatious or an abuse of process.
[2] For the reasons that follow, I am allowing the defendant’s motion in part only. It is my view that the claim cannot fairly be described as frivolous or vexatious. However, the conspiracy and fraud claims advanced against the defendant in this action are substantially identical to conspiracy and fraud claims pending in another action. Instead of seeking leave to amend the claim in that other proceeding to add the defendant to this action as an additional party to the conspiracy alleged in that other action, the plaintiffs started a new action entirely. This was an abuse of process. In the circumstances of this case, I have determined that the appropriate remedy is not to strike out the action entirely but to stay this proceeding to permit the plaintiff to seek appropriate relief in the other proceeding. Should the plaintiffs be unable to obtain leave to amend the other action by reason of a limitation period expiring after the commencement of this action, the interests of justice may warrant lifting the stay of proceeding.
[3] The plaintiff Nuco Jewelry Products Inc. is a jewelry manufacturer. The Plaintiff R. Christopher Lux was formerly a 50% owner of Nuco along with Mr. Peter Weeks who owned the other half of the company. The defendant Linda Lynott was formerly the external accountant of Nuco prior to the acquisition of control of Nuco by Mr. Lux in 2011.
[4] On February 1, 2011, Mr. Lux acquired Mr. Weeks’ shares of Nuco and took over active management of the company. Prior to that time, he had been a director but was not involved in the day to day operations of the company. Mr. Weeks retired from his former role as President of the company at that time.
[5] On September 13, 2013, the plaintiffs began an action (the “Weeks Action”) against Mr. Weeks and his spouse Lucienne. The Weeks Action alleges, among other things, that Mr. Weeks and Ms. Robin Sluce took active steps to mislead the plaintiffs as to the affairs and business of Nuco. Among other allegations, the Weeks Action claims that missing inventory was concealed, inventory was misappropriated, inventory records were falsified resulting in an underpayment of corporate taxes. Civil fraud and conspiracy are specifically pleaded.
[6] Ms. Sluce is the object of a counterclaim in another action that has been ordered consolidated with the Weeks Action. She had previously brought a wrongful dismissal action against Nuco.
[7] This action was commenced on July 16, 2015. A comparison of the statement of claim in this action and the statement of claim in the Weeks Action reveals that the two claims are substantially identical in the sense that the statement of claim in this action is almost word-for-word a cut and paste from the Weeks Action claim. The defendant suggests 51 of 64 paragraphs in this statement of claim are copied directly from the claim in the Weeks Action modified only to add Ms. Lynott’s name to those of Mr. Weeks or Ms. Sluce. The claims against Ms. Lynott almost entirely consist of claims that she took various actions “in concert with Weeks and Sluce” or with Weeks alone. All or substantially all of the claims made against Ms. Lynott in this action are in respect of various things she is alleged to have done in concert with Mr. Weeks and/or Ms. Sluce and which are the object of claims already advanced in the Weeks Action.
[8] The moving party Ms. Lynott urges three arguments to support her claim to have this action dismissed as frivolous, vexatious or an abuse of process at this early stage. Firstly, she claims that the plaintiffs have no evidence at all to support their claim against her. As such, the claim is a mere fishing expedition that ought to be dismissed, particularly having regard to the grave accusations of fraud made without any reasonable foundation in fact. Secondly, she claims that the evidence on this motion justifies a finding by me that the action has been brought for a collateral or improper purpose. Finally, she claims that by bringing this separate action instead of seeking leave to add her as a party defendant in the Weeks Action, the plaintiffs have abused the process of this court. I am therefore asked to dismiss the claim in its entirety. I shall examine each of these grounds separately.
[9] As a preliminary matter, I note that there was no serious disagreement between the parties as to the general principles of law applicable to motions under Rule 21.01(3)(d) of the Rules of Civil Procedure. Both agree that the threshold to succeed on such a motion is quite high in that my discretion ought only to be exercised in the clearest of cases: Temilini v. Ontario Provincial Police Commissioner, 73 O.R. (2d) 664 (C.A.). In the words of Grange J.A. in Temilini:
“[Rule 21.01(3)(d)] should be exercised only in the clearest cases. Where a case cannot succeed because the law forbids it, the rule brings a salutary end to the proceedings. In cases depending on the facts, however, the court should be very loath to determine those issues in a summary fashion. When the case appears only to lack evidence, so long as the gaps may be filled, either by discovery or the revelation of evidence at trial, the case should be allowed to proceed.”
(a) Is there a reasonable foundation in fact to this action?
[10] The defendant suggests that this is one of the rare cases where the facts and admissions obtained establish that the case is entirely without foundation. However, she frankly admits that the claim, while far from perfect in its provision of particulars of the allegations of fraud, conspiracy and breach of fiduciary duty, is not so bald or devoid of particulars as to preclude her from pleading over to it. She bases her claim that this claim is a mere fishing expedition launched without any factual foundation on admissions obtained on cross-examination from the plaintiff.
[11] I am unable to agree with the defendant’s submission. Firstly, she has been unable to point me to any authority that the court should look behind facts properly pleaded at this early stage to assess the evidence that might be brought to bear to prove them. In the words of Grange J.A. in Temilini, “[t]rials are notoriously unpredictable. Many a case apparently hopeless on the facts has been transformed into a winner by an unexpected turn of events in the form of either a surprise witness or a witness giving surprising evidence” (at O.R. p. 668-669). Although evidence is admissible on this motion, we are not in a “best foot forward” situation as would be the case in a motion under Rule 20 of the Rules of Civil Procedure. It seems to me that a motion brought before the close of pleadings is the wrong time to assess whether the gaps in evidence can be filled at a later time. I do not exclude such a motion being brought where the gaps in evidence combined with some other factor (such as an improper motive) might cumulatively demonstrate the presence of a frivolous, vexatious or abusive action. Every case must turn on its peculiar combination of facts.
[12] Secondly, my review of the plaintiffs’ alleged admissions as urged by the defendant does not support the claim that there is no foundation to the allegations. The forensic accountant’s report relied upon by the plaintiffs as provided the foundation of their claim against Ms. Lynott suggests there is evidence that the defendant received inventory reports that were then altered or manipulated at periodic meetings attended by Mr. Weeks, Ms. Sluce and herself. Whether some or all of that evidence will withstand close scrutiny at trial or discovery I cannot now say. However, I cannot find that the plaintiffs had no reasonable basis to make the claim they have made based in substantial part on the analysis contained in that forensic report.
(b) Has the action been commenced in pursuit of an improper or collateral motive?
[13] The defendant also points to the plaintiffs’ responding affidavit that recounts the circumstances preceding the launch of this action in July 2015. The affidavit of Mr. Lux (and his cross-examination on that affidavit) includes details of efforts made in 2012-2014 to obtain production of various documents possessed by Ms. Lynott in her capacity as former accountant of the company. The defendant suggests that this is evidence that this action was in fact commenced for an improper motive either to punish Ms. Lynott for her failure to co-operate or to secure through discovery documents that could more properly have been sought under Rule 30.10 of the Rules of Civil Procedure. In either case, she submits this action is an abuse of process since it is brought for an improper or collateral purpose.
[14] Once again, I am unable to agree with the position advanced by the defendant. The decision to commence an action can have any number of contributing motives, not all of which may be related solely to the merits. A tactical decision to marshal scarce resources and pursue only low-hanging fruit may have been made and then reconsidered. That decision may be revisited as additional facts come to light or resources are available. I should be slow to be overly distracted by a search for the motives underlying a decision to commence a claim. Secondly, I cannot accept that the evidence points to a finding that the plaintiffs’ motive in this case constitutes an improper or collateral purpose. To the contrary, I accept that the plaintiffs found the reluctance of the defendant to provide documents to them to be suspicious in the circumstances and thus a contributing factor in determining whether to include the defendant in the allegations previously restricted to Mr. Weeks and Ms. Sluce. Some of the documents requested were routine and the conflict of interest excuse offered by the defendant appeared to the plaintiffs as being quite unreasonable. I accept that this factor informed their decision to take action and I do not agree that such reasoning was either improper or unreasonable.
[15] The presence of smoke often denotes fire. The defendant was emitting large quantities of smoke with her apparently unusual behaviour. Whether she had grounds to withhold documents from her own client that withstand close scrutiny I need not say – I simply conclude that the grounds reasonably appeared contrived to the plaintiffs.
[16] I cannot find that the plaintiffs have commenced this action out of some fit of pique to punish Ms. Lynott or merely to pressure her to make disclosure of documents. The defendant has not demonstrated that the plaintiffs have commenced this action in pursuit of some improper or collateral motive. I reject this ground of the motion.
(c) Was the commencement of a separate action an abuse of process?
[17] In my view, the question of the alleged liability of Ms. Lynott is inextricably intertwined with the liability of Mr. Weeks that will be determined in the Weeks Action. While there are allegations against Mr. Weeks that are not made against Ms. Lynott, virtually all of the allegations against Ms. Lynott are directly or indirectly tied to the success of related (or substantially identical) allegations made against Mr. Weeks. Their liability is, in almost every instance, alleged to be joint and several.
[18] The defendant relies very heavily on the decision of the Court of Appeal in Maynes v. Allen-Vanguard Technologies (Med-Eng Systems Inc.), 2011 ONCA 125. She submits that I should follow the decision of Weiler J.A. and find that asserting the separate claim against Ms. Lynott here “circumvented the requirement of rule 26.02(c) of the Rules of Civil Procedure to obtain leave of the court to add a non-consenting party to an action after pleadings are closed”.
[19] The plaintiffs for their part urge me to rely instead upon the decision of Lauwers J.A. in Abarca v. Vargas, 2015 ONCA 4 where he distinguished Maynes. They note that their action already seeks, among other things, an order consolidating their action with the Weeks Action and there is thus no actual prejudice.
[20] The defendant suggests and I agree that the Abarca case is distinguishable from this case and that Maynes ought to govern. The insurer’s claim in Abarca, was a stand-alone claim that was “distinct from the relief claimed against the other defendants” (Abarca, para. 52). The claim against Ms. Lynott and the relief claimed is essentially identical to the claims in the Weeks Action.
[21] It is no more proper to bring 500 claims against 500 partners for the same wrong that it is to sue co-conspirators separately. Both are instances of an abuse of process that should be controlled by this court.
[22] I am of the view that route chosen by the plaintiffs to extend their existing claim to the defendant Lynott was indeed an attempt to circumvent Rule 26.02(c) of the Rules of Civil Procedure (and likely s. 21(1) of the Limitations Act, 2002, S.O. 2002, c. 24 that bars the addition of a party by amendment outside the limitation period). The resulting multiplicity of proceedings is an abuse of process that should not be tolerated.
[23] While I agree that Abarca is to be distinguished from this case, I concur with Lauwers J.A. that the penalty for an abuse of process is not limited to dismissal of the action. Taking the entire litigation context into account, it seems to me that outright dismissal would be overkill here. The penalty ought to fit the crime. The harm in this case is fairly easily repaired.
[24] If the plaintiffs had gone through what I would characterize as the “front door”, a motion for leave to amend the existing claim in the Weeks Action would have been brought. On such a motion, the court would have had an opportunity to consider what terms to attach to its consent having regard to possible prejudice to other parties from the late addition of a new party to proceedings that were being case-managed and were (and are) well down the road. As well, if the defendant was of the view that she is entitled to the benefit of a Limitations Act defence, the matter of discoverability could have been canvassed in light of s. 21(1) of the Limitations Act that prohibits such amendments if outside the relevant limitation period.
[25] The defendant Lynott can still be put in the same position she would have been had a different tactical decision been taken by the plaintiffs in July 2015. She will still have an opportunity to challenge the amendment under s. 21(1) of the Limitations Act if she is so moved. Any party alleging prejudice will be able to prove that prejudice and seek appropriate remedies. Outright dismissal of the action puts the defendant in a better position than she would have been in if the plaintiffs had gone through the amendment route instead of starting a fresh action.
[26] Accordingly, I have decided to stay this action in order to permit the plaintiffs to bring a motion to add Ms. Lynott as a defendant in the Weeks Action.
[27] There is only one circumstance that I can presently foresee that would cause the stay I am imposing hereby to be removed and this is if the plaintiffs are unable to add the defendant to the Weeks Action by reason either of prejudice that has arisen since this action was commenced or the expiry of a limitation period since that time.
[28] Of course, it lies quite within the power of the defendant to avoid the lifting of the stay that I am imposing if she intends to assert that a limitation period has expired since July 15, 2015: she has only to agree not to do so.
[29] The plaintiffs have been largely but not entirely successful on this motion. While success has been divided, is reasonable to observe that the bulk of the parties’ efforts in relation to this motion has been focused on issues where the defendant has been unsuccessful. I would encourage the parties to settle costs if they are able. If they are not, I will receive written submissions from both sides within thirty days of the release of these reasons. Replies are not to be encouraged, but if thought necessary may be delivered five days later. Submissions should be restricted to five pages exclusive of Outlines of Costs. Cases need not be attached unless not available on line.
[30] Order accordingly.
