SUPERIOR COURT OF JUSTICE - ONTARIO
RE: CMW Custom Metal Slitting Ltd. v. Tracy Squires;
BEFORE: MASTER C. WIEBE
COUNSEL: J. B. Donnelly for Tracy Squires; D. Delagran for CMW Custom Metal Slitting Ltd.;
HEARD: October 19, 2016 at Toronto, Ontario.
REASONS FOR DECISION
I. INTRODUCTION
1The defendant, Tracy Squires (“Squires”) brought a motion originally returnable May 24, 2016 for an order requiring that the plaintiff, CMW Custom Metal Slitting Ltd. (“CMW”) produce a further and better affidavit of documents and further documents, or, in the alternative, an order requiring production of a copy of the hard drive and computer records with regard to Squires’ computer at the CMW place of business for the period 2001 to April 25, 2014. This motion was brought in the context of a pending motion by CMW for summary judgment, which at that time had been scheduled to be heard on June 30, 2016.
2In the underlying action, CMW alleges that Squires defrauded CMW while she was employed as the company’s office administrator from 2003 to 2014 by secretly channeling company cash to herself. The amount alleged to have been “stolen” is $471,355.62. Squires does not deny the cash payments to herself, but asserts that they were repayments of loans she gave to CMW or payments to facilitate cash payments she made to CMW creditors and other persons, all at the behest of the principal of CMW, Charles Dajko. She claims that her loans totaled about $370,000 and that she has been repaid about $330,000, leaving about $40,000 unpaid. She counterclaims for that amount and for damages of $1.8 million for slander, defamation, libel, loss of competitive advantage, mental distress, discrimination, and wrongful dismissal.
3I ordered on May 24, 2016 that the within motion be adjourned, on consent, to a special appointment before me on October 19, 2016. I also ordered that by the return date of the motion: (1) the parties were to confer and make their best efforts to agree to a discovery plan; (2) CMW was to bring a separate motion to have this action case managed by me, as CMW argued that this case had factual complexities that merited case management; and (3) the parties were to adjourn the CMW motion for summary judgment sine die as the within production motion had to be determined before the motion for summary judgment.
4On October 19, 2016 counsel advised me that the CMW motion for summary judgment had been withdrawn, that they had agreed to a discovery plan (which they filed) and that they were bringing a consent motion (without separate supporting material) to have this action case managed by me.
5As to the issue of case management, I reviewed the criteria for same under Rule 77.05 and came to the conclusion that the only criteria justifying case management in this case was the factual complexity of it, which will probably require more than the usual production, discovery and court intervention. The parties had by this point agreed that the case had evolved into one of complicated forensic accounting for a period of some 11 years. I granted the order and scheduled the first case conference to take place by phone with me on November 17, 2016.
6As to the discovery plan, unfortunately it was general in scope and of no assistance with the within production motion. Mr. Delagran wanted the production motion adjourned to the case conference to allow the parties to resolve the production issues; but Mr. Donnelly pointed out rightfully that the parties had not succeeded in this regard to date and were unlikely to do so without court intervention. Therefore, the Squires production motion proceeded.
7The motion material filed was the following: the motion record and responding motion record in the CMW motion for summary judgment plus the plaintiff’s three volume affidavit of documents (all of which were filed by Mr. Donnelly unfortunately no sooner than at the time of the argument); the two volume Squires motion record in the within motion, containing an affidavit sworn by Squires and the pleadings; the one volume responding motion record from CMW containing an affidavit sworn by Mr. Delagran; and the Squires factum and book of authorities. As a preliminary matter, Mr. Donnelly waived any objection to Mr. Delagran appearing to argue on his own affidavit.
II. ISSUES
8Having reviewed the motion material and heard the arguments, I believe that the following are the issues to be determined:
a) Should the 8 missing, allegedly fraudulent, Squires cheques be produced?
b) Should the Squires spreadsheet on her office computer be produced?
c) Should the cheque stubs for the listed, allegedly fraudulent, Squires cheques be produced?
d) Should the cheques corresponding to the admittedly non-fraudulent cheque stubs be produced?
e) Should all deposit slips of CMW and related companies in Squires’ name or for amounts not ending in cents be produced?
f) Should invoices to CMW from 2003 to 2014 that were paid in cash be produced?
g) Should the income tax returns and financial statements of CMW for the period 2003 to 2014 be produced?
h) Should all deposit slips and bank statements of the CMW related companies for the period 2003 to 2014 be produced?
i) Should the cheque stubs, cheques, T-4 slips and employment records concerning payments made to certain employees of CMW and friends and relatives of Mr. Dajko (Ruth McCabe, Tony Rybinak, Trevor Rice, Billy Janes, Wayne Walrond, Russell Martinell, Ram Dooby, Erika Power, Stan Gerald, Dale and Harry) be produced?
j) Should Mr. Dajko’s personal credit card statements for 2003 to 2014 be produced?
III. ANALYSIS
(a) Should the 8 missing, allegedly fraudulent, cheques be produced?
9CMW alleges that Squires defrauded it using cheques written to “cash” or to herself or through other bank transfers. In the Statement of Claim CMW lists the alleged fraudulent cheques made out to Squires. It has produced all of these cheques except 8, namely cheques numbered 6006, 6027, 6828, 6525, 6598, 6720, 6756 and 6894. Mr. Delagran confirmed that the plaintiff will make best efforts to deliver copies of these cheques to the defendant. I so order.
(b) Should the Squires spread sheet on her office computer be produced?
10In her affidavit in this motion, Squires states that she prepared a spreadsheet on her office computer showing the loans she made to CMW and the repayments she made to herself for these loans. She states that this document was on her office computer when she was summarily dismissed on April 25, 2014. It is undisputed that this document is highly relevant. Mr. Delagran confirmed that his client will mount a search for this document. I order that it must be produced.
(c) Should the cheque stubs for the listed, allegedly fraudulent, Squires cheques be produced?
11Mr. Donnelly pointed out that the listed cheques were computer generated and that the computer also generated “cheque stubs” corresponding with the cheques, which stubs in many cases contained information, input by Squires, as to the ultimate purposes of the cheques. As such, there is no doubt that these “stubs” are relevant and must be produced. Mr. Delagran did not dispute this point. He stated that his client has already produced all of these “stubs”. I order that all such stubs must be produced.
(d) Should the cheques corresponding to the non-fraudulent cheques stubs be produced?
12At Tab 4 of the CMW affidavit of documents there are a series of computer generated cheque “stubs,” which are for cheques that CMW accepts as not being fraudulent. The cheques span the period from 2009 to 2014. Squires wants copies of the cheques corresponding to these cheque stubs. Mr. Donnelly argued that the cheques can be compared to the allegedly fraudulent cheques and cheque stubs to show a course of conduct on the part of Squires in issuing cheques. He pointed out that Carolyn Seaquist, the forensic accounting expert from Collins Barrow Squires has hired, requires this documentation. Ms. Seaquist has produced a lengthy letter dated August 13, 2015 wherein she required production of several documents to complete her study of the issues.
13Mr. Delagran argued that this was over-broad and disproportionate production. He pointed out that these cheques are not in issue, and, in many cases, predate the period of the allegedly fraudulent cheques, namely 2012 to 2014. I do not agree. The allegations against Squires are serious, namely fraud, conversion, breach of fiduciary duty and unjust enrichment. Furthermore, the amount claimed against Squires is not insignificant, namely $471,355.62. Third, the accounting and business practices adopted by CMW were quite unorthodox and left a minimal paper trail. Finally, Squires pleads that the alleged fraudulent cheques were a part of a course of conduct that spanned the entirety of her employment. As a result, to unearth the history of the transactions in question and to be fair to the parties, the court will have to allow broader than usual production and discovery in order to explore the courses of conduct of the parties in their full breadth. I order that these cheques be produced.
(e) Should all deposit slips of CMW and related companies containing Squires name or for amounts not ending in cents be produced?
14There are two companies that are related to CMW, namely Twinlakes Holdings Ltd. (“Twinlakes”) and Consolidated Machine Works Ltd. (“Consolidated”). Squires’ affidavit in this motion states that she tended to make her alleged loans to these companies in round figures, while payments from creditors to these companies were in precise amounts. As a result, Squires seeks production of all deposit slips of CMW, Twinlakes and Consolidated that are either in her name or for amounts not ending in cents for the entire period of her employment, 2003 to April, 2014.
15It is undisputed that the deposit slips of Twinlakes and Consolidated are within the power and control of CMW. Furthermore, the relevance of this production was not seriously disputed. Mr. Delagran’s primary point was that CMW had produced all bank deposit books in its power, possession and control. I, therefore, order the production of these documents.
(f) Should invoices to CMW from 2003 to 2014 that were paid in cash be produced?
16At tab 62 of the CMW affidavit of documents there are a series of invoices to CMW. In her affidavit in this motion, Dolores Arruda, assistant to Mr. Donnelly, stated that while she and Mr. Donnelly were visiting the offices of Mr. Delagran on April 19 and 28, 2016 to examine CMW productions she noticed that the documents at tab 62 had a notation which indicated that these were the invoices that CMW could not confirm had been paid either by cash or credit card. Squires states in her pleading that she paid CMW’s creditors with cash from company cheques she made out to herself, all at the behest of CMW. She states in her affidavit in this motion that many of these invoices contain notations by her as to payment. She, as a result, wants production of all invoices that were paid in cash, as opposed to cheque, for the period of her employment in order to discover these notations and to correlate the invoices to the allegedly fraudulent cheques.
17Mr. Delagran objected to the scope of this request as being disproportionate to the amounts and issues in this case. He pointed out that his client made a large volume of invoices available to Mr. Donnelly to examine, and that some 720 documents were flagged and copied for Mr. Donnelly in this process. With respect, I favour Squires on this issue. Again, the business and accounting practices of CMW were such that there are minimal paper records as to what happened to the money Squires handled during her employment at the behest of CMW. The expert witnesses in this action will have to reconstruct that history. Therefore, the scope of production must be broadened in order to make this exercise meaningful.
18What I will order at this stage is that CMW must compile all of these invoices and make them available for review by Mr. Donnelly’s team at a mutually agreed upon time, and that CMW must copy for Squires the invoices that Mr. Donnelly’s team flags. If in the end, Mr. Donnelly wants all of them produced, they must be produced.
(g) Should the income tax returns and the financial statements of CMW for the period 2003 to 2014 be produced?
19Squires pleads that CMW had no credit and no working capital, and that this was the reason CMW resorted to borrowing money from Mr. Dajko’s friends, employees and Squires. In the CMW motion for summary judgment, Mr. Dajko swore an affidavit wherein he stated, on the other hand, that CMW “consistently became more profitable.” Mr. Dajko’s evidence was that it was Squires alleged fraud that contributed significantly to CMW’s business troubles. To clarify this contradiction in the positions of the parties, Squires wants production of the CMW tax returns and financial statements for the entire period of her employment.
20Mr. Delagran objected, arguing that this was an issue of credibility only and that there should be no production at this stage concerning documents that pertain only to credibility. I agree that this production request concerns credibility. However, the case will turn on credibility, and the issue of the underlying health of the company is critical to the credibility of the parties’ respective positions. I, therefore, have decided to order that CMW produce its tax returns and financial statements. But, in the interests of proportionality, I will limit this production at this stage to the last five years of Squires employment (2010 to 2014), which includes the period during which CMW claims Squires was drawing fraudulent cheques and is broad enough to show the health of the company leading to that period. This is without prejudice to a claim for further production of these documents for the earlier years once the first round of discoveries is done.
(h) Should all deposit slips and bank statements for Twinlakes and Consolidated for 2003 to 2014 be produced?
21Squires pleads that she was instructed to take cash from CMW and pay it to CMW’s creditors, suppliers and contractors. In her affidavit in this motion, Squires states that she made payments to Twinlakes and Consolidated at CMW’s behest. She wants copies of all deposit slips and bank statements of Twinlakes and Consolidated for the period of her employment as a result. Mr. Delagran responded by first confirming that CMW has produced the deposit books and bank statements for Twinlakes and Consolidated for the period, 2013 to 2014, the period CMW claims during which Squires drew fraudulent cheques. He argued that production of these documents for the earlier period is over-broad and disproportionate.
22I have decided that the earlier deposit slips and bank statements of Twinlakes and Consolidated must be produced as well. Given the apparent gross absence of paper substantiation for the accounting and business practices of CMW during Squires employment and the gravity of the allegations against her, the whole course of her conduct in handling CMW’s money must be investigated, not just the years CMW alleges fraudulent cheques were written.
(i) Should the cheque stubs, cheques, T-4 slips and employment records concerning payments made to certain employees of CMW and friends and relatives of Mr. Dajko (Ruth McCabe, Tony Rybinak, Trevor Rice, Billy Janes, Wayne Walrond, Russell Martinell, Ram Dooby, Erika Power, Stan Gerald, Dale and Harry) be produced?
23Squires pleads that she was directed by Mr. Dajko to draw cheques to herself in order to pay Mr. Dajko’s employees, girlfriend, daughter and spouse in cash. The individuals in question are those named in the above question. In her affidavit in this motion, Squires points out how she recalls getting the employees and contractors paid in cash for the work they did for Mr. Dajko and CMW, and how she recalls getting Mr. Dajko’s spouse, daughter and girlfriend paid in cash as well. She wants all of these documents produced in order to recreate what paper tail exists for these payments.
24Mr. Delagran objected to this production on the basis of disproportionality. Again, I do not agree. The absence of paper corroboration for the accounting and business practices of Mr. Dajko and his companies requires the court to broaden the usual scope of production to include documents relevant to the course of conduct of Squires in handling CMW’s money. That includes these documents. They must be produced.
(j) Should Mr. Dajko’s personal credit card statements for the period 2003 to 2014 be produced?
25Tab 6 of the CMW affidavit of documents contains a summary of certain credit card payments CMW alleges Squires made electronically without authorization. In her affidavit, Squires alleges that she made legitimate electronic payments of Mr. Dajko’s credit cards and that CMW has erroneously ascribed these payments to other credit cards. She wants all of the Dajko credit card statements in order to correlate the credit card statements to the payments she made.
26Again, because of the admitted absence of a paper trail for much of what Squires did with CMW’s money and the gravity of the allegations against her, the court must broaden the usual boundaries of production to include documents that may have marginal relevance at this point. The requested credit statements are relevant to establish a course of conduct on the part of Squires that may undermine CMW’s accusation about unauthorized electronic payments, if proven. I order that these documents be produced.
IV. CONCLUSION
27I make an order for production by the plaintiff to the defendant that reflects my findings above.
28As for the costs of this motion, I gave both sides leave to file costs outlines within three days of the argument. Mr. Delagran filed a costs outline for CMW on October 21, 2016. It showed a partial indemnity amount of $7,358.39. Mr. Donnelly filed a costs outline for Squires on Sunday, October 23, 2016. It showed a partial indemnity amount of $54,271.62 and a substantial indemnity amount of $89,430.80.
29Generally costs follow the event. If the parties are unable to agree on costs, counsel may file written submissions on costs. This is necessary as well given the size and disparity of the costs claims. Submissions may not exceed three pages. Squires’ submissions must be served and filed by November 14, 2016. CMW’s submissions must be served and filed by November 28, 2016. Reply submissions, if any, must be served and filed by December 1, 2016.
30Given the amounts in issue, the parties are also to confer as to whether they wish to make oral submissions on costs instead of or in addition to the written ones. If they do and only if they agree, they are to notify my assistant trial coordinator in writing within three days from the date of this order as to what has been agreed to, and schedule an appearance before me on one of my regular motion dates for a time that is no longer than one hour to argue the issue of costs.
DATE: October 31, 2016
MASTER C. WIEBE