Court File and Parties

COURT FILE NO.: CV-11-15997 DATE: 2017038 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GEORGE POPOVICH and 2038339 ONTARIO INC., Plaintiffs AND: FINANCIAL INVESTMENT CENTRE INC., RICHARD W. WOODALL, 2107835 ONTARIO INC., MAURO DiMARIO, 2107815 ONTARIO INC., and DESJARDINS FINANCIAL SECURITY INVESTMENTS INC., Defendants

BEFORE: King J.

COUNSEL: Ron Shulgan, Counsel for the Plaintiffs Eric J. Schjerning, Counsel for the Defendant, Desjardins Financial Security Investments Inc. (via telephone) Matt Todd, Counsel for the Defendants, Financial Investment Centre Inc., Richard Woodall, 2107835 Ontario Inc., Mauro DiMario, and 2107815 Ontario Inc.

HEARD: February 23, 2017

Endorsement

[1] There are two separate motions before the court. In each, defendants’ counsel are seeking an adjournment of the four-week trial scheduled for the sittings of this court commencing April 3, 2017, but each for different reasons. The defendants Richard Woodall and Mauro DiMario and their respective holding companies, 2107835 Ontario Inc. and 2107815 Ontario Inc., (collectively, the “Woodall defendants”) are seeking an adjournment so they may continue with a motion for leave to appeal the decision of Carey J. dated January 20, 2017. The defendant Desjardins Financial Security Investments Inc. (“Desjardins”) is seeking an adjournment so that it may bring a motion for summary judgment against the plaintiffs, George Popovich (“Popovich”) and his holding company, 2038379 Ontario Inc.

[2] These two motions set the competing rights and interests of litigants in a civil proceeding on a collision course to a complicated and increasingly crowded judicial intersection in the post- Hryniak v. Maudlin [1] world.

Background

[3] The plaintiffs commenced this action for damages against the Woodall defendants and the now bankrupt Financial Investment Centre Inc. (“FIC”) in 2011. In it, the plaintiffs allege a breach of a share purchase agreement for certain shares of the defendant FIC, as well as a breach of a shareholders agreement, and they also claim shareholder oppression. The defendants have all counterclaimed for damages they allegedly suffered as a result of the misconduct of Mr. Popovich. For a number of years, Mr. Popovich sold various securities and other financial products as a dealer with the defendant Desjardins.

[4] Between 1998 and 2003, Mr. Popovich entered into arrangements in furtherance of his business with the Mr. Woodall defendants. Over time, Mr. Popovich, Mr. Woodall and Mr. DiMario entered into shareholder and other agreements.

[5] On February 26, 2009, Desjardins terminated its relationship with Mr. Popovich for reasons of alleged misconduct. Following that, the business relationship between Mr. Popovich, Mr. Woodall, Mr. DiMario and their respective companies became adversarial.

[6] The action was set down for trial in January 2014. During a pre-trial held in December 2015, I scheduled the trial without a jury for four weeks commencing with the sittings on April 3, 2017.

Issues

The Desjardins Motion

[7] Should the trial of this action, currently scheduled for a four-week period commencing on April 3, 2017, be adjourned to permit the defendant Desjardins to bring a summary judgment motion?

The Woodall Motion

[8] Should the trial be adjourned to permit the Woodall defendants to seek leave to appeal the decision of Carey J., dated January 20, 2017, wherein he dismissed a motion made by the Woodall defendants to strike the plaintiffs’ statement of defence or, alternatively, to stay the trial due to the plaintiffs’ acknowledged failure to pay certain outstanding costs orders?

The Desjardins Motion for Adjournment

[9] During the relevant timeframe, the business activities of the respective parties to this litigation were governed pursuant to the rules imposed by the Mutual Fund Dealers Association of Canada (“MFDA”). A complaint was made to the MFDA in 2007 against Mr. Popovich by one of his Desjardins clients. Desjardins terminated Mr. Popovich on February 26, 2009 because of his purported misconduct. Mr. Popovich alleges in this claim that such termination was improper and without cause.

[10] On November 30, 2012, the MFDA commenced misconduct proceedings against Mr. Popovich alleging misconduct between June 30, 2006 and February 26, 2009.

[11] On May 13, 20015, Mr. Popovich was found guilty of misconduct by an MFDA Tribunal. He was permanently prohibited from conducting any securities-related business with MFDA member organizations, fined $100,000 and ordered to pay costs of $50,000.

[12] The penalty issued was severe because of a finding of deliberate deceit and document falsification leading to the Tribunal to conclude that Mr. Popovich could not be trusted to act appropriately in the future.

[13] According to Desjardins, this finding establishes that Mr. Popovich breached his representative agreement and therefore provides just cause for termination. Accordingly, Desjardins submits it can establish on a summary judgment motion that there is no genuine issue for trial as against it.

[14] In fairness, counsel for Desjardins concedes that while his client’s success on a summary judgment motion arising from the permanent prohibition against Mr. Popovich by the MFDA will substantially limit the plaintiffs’ claim, it will not completely dispose of the claim against Desjardins. It will still be required to participate in the trial.

The Decision to Bring a Summary Judgment Motion

[15] Following the MFDA decision in May 2015, Desjardins’ counsel moved to prepare a summary judgment motion in 2016. At an unspecified date in November 2016, Desjardins’ counsel was advised by the court office that the earliest the summary judgment motion could be heard was in June 2017. This date is after the scheduled commencement of the trial.

[16] There is no indication in the materials whether Desjardins has taken action pursuant to r. 48(4) of the Rules of Civil Procedure [2] to obtain leave to bring the summary judgment motion.

[17] Desjardins relies on r. 52.02, which gives the court authority to postpone or adjourn a trial to such time and place, and on such terms, as are just.

[18] For the reasons that follow, I am dismissing the motion of the defendant Desjardins to adjourn the trial scheduled to commence on April 3, 2017.

Analysis

[19] On my review of the material, it is clear that the narrow issue to be decided on the proposed motion for summary judgment is exactly what Grace J. envisioned in Bruno Appliance & Furniture Inc. v. Cassells Brock & Blackwell LLP [3] and the Supreme Court of Canada embraced when the matter was decided in Hryniak.

[20] According to Desjardins’ counsel, the decision of the MFDA on May 13, 2015, which found the plaintiff Popovich guilty of serious misconduct warranting a permanent prohibition from conducting securities-related business with, or on behalf of, an MFDA member organization, may well constitute just cause for Desjardins to have terminated Mr. Popovich.

Does Desjardins Require Leave?

[21] Rule 48.04(1) provides that the party who set an action down for trial and any party who consented to the action being placed on a trial list cannot initiate or continue any motion (or form of discovery) without leave of the court.

The Prominence of Summary Judgment Motions in Civil Proceedings

[22] Based on the decision of the Supreme Court of Canada in Hryniak, it is now generally accepted law that the new structured summary judgment motion regime serves a significant and enhanced role in our judicial system.

[23] At paras. 43 and 45 of that decision, Karakatsanis J. states the following:

[43] The Ontario amendments changed the test for summary judgment from asking whether the case presents “a genuine issue for trial” to asking whether there is a “genuine issue requiring a trial.” The new rule, with its enhanced fact-finding powers, demonstrates that a trial is not a default procedure. Further it eliminated the presumption of substantial indemnity costs against a party that brought an unsuccessful motion for summary judgment in order to avoid deterring the use of the procedure.

[45] These new fact-finding powers are discretionary and are presumptively available; they may be exercised unless it is in the interests of justice for them to be exercised only at trial; Rule 20.04(2.1). Thus, the amendments are designed to transform Rule 20 from a means to weed out unmeritorious claims to a significant alternative model of adjudication. [4]

Timing

[24] The impact of this amended rule and the direction provided by the Supreme Court has virtually spawned a new legal industry in civil matters. However, even though Rule 20 summary judgment motions are being used with an increasing frequency, such motions do not automatically subordinate the rights of all parties to the litigation. When I analyze the competing issues that meet at the intersection of Rule 20 and Rule 48, I need to be mindful to balance the interests of the litigants.

[25] I accept that the evidence Desjardins wishes to present in a support of a summary judgment motion did not crystallize until the decision of the MFDA on May 13, 2015. However, had Desjardins sought leave to bring a summary judgment motion in a timely manner following May 2015, the granting of leave would have been both timely and appropriate. In all respects, this would likely have provided a mechanism for the prompt and efficient adjudication of the summary judgment motion issues before the trial date was set in December 2015, and certainly long before the actual April 2017 trial date.

[26] However, given that Desjardins did not take formal steps to bring its summary judgment motion until late 2016, to grant the adjournment of this four-week trial that it is now seeking would not properly balance the interests of the plaintiffs.

[27] In particular, while summary judgment motions have an expanded role in the disposition of cases like this, there is nothing in Rule 20 that eliminates the safeguards put in place by r. 48.04(1).

[28] In this regard, I agree with the decision of Thomas J. on a prior motion in this litigation, where he denied leave to the plaintiffs leave to bring a partial summary judgment motion, holding that leave is required to bring motion for summary judgment after a matter is set down for trial. In particular, he said the following:

It seems clear that the broad language of Rule 48.04(1) captures summary judgment motions that therefore require leave once the action is set down (Theodore Holdings Ltd. v. Anjay Ltd. (1993), 18 C.P.C. (3d) 160 (Ont. Gen. Div.); Fruitland Juices Inc. v. Custom Farm Services Inc., 2012 ONSC 4902, at para. 13). [5]

[29] Furthermore, the logic utilized by Thomas J. in denying the plaintiffs leave is also applicable to the situation now before the court.

[30] I adopt the following comments of Thomas J. in his March 17, 2016 decision on this matter, wherein he denied the plaintiffs leave to bring a summary judgment motion:

In the circumstances of this case, the summary judgment motion might very well cause some unintended mischief to the litigation while clearly providing none of the benefits the plaintiff suggests. [6]

[31] While I can appreciate that this matter was set down for trial in 2014, and the evidence Desjardins now wants to rely on in support of the summary judgment motion did not crystallize until May 2015, the fact is that Desjardins:

i) waited between 16 and 18 months from the May 2015 decision of the MFDA to take formal steps to pursue a summary judgment motion; ii) waited almost a year from the date in December 2015 when this matter was scheduled for trial; and iii) commenced taking steps to pursue a summary judgment motion at a time when it would be virtually inevitable that the summary judgment motion process could not be completed before the April 2017 trial date.

[32] Furthermore, while Desjardins may well have a strong case for summary judgment with respect to the bulk of the claim it faces, it will still have to participate in the trial. As such, the underlying goal of eliminating a party at trial would not be achieved even if the trial is adjourned and the defendant Desjardins succeeds on a summary judgment motion arising out of the MFDA decision from May 2015.

[33] Denying an adjournment to seek leave to bring a summary judgment motion at this time does not in any way restrict or prohibit Desjardins from fully advancing its position on any of the issues in this case. It simply requires them to do so at trial. This is exactly the approach it was prepared to take for well over a year (and perhaps for upwards of 18 months) following the MFDA decision in May 2015.

[34] Finally, I conclude that to deprive the plaintiffs of a scheduled trial date in circumstances where the summary judgment process could have been started and completed, likely before the trial date even was set and certainly before the April 3, 2017 trial date, is not in the interests of justice.

[35] For these reasons, the motion by Desjardins to adjourn the trial so that it may pursue a summary judgment motion is denied.

The Outstanding Costs Issue – The Woodall Defendants’ Appeal

[36] In early 2016, the plaintiffs sought leave pursuant to r. 48.04(1) of the Rules of Civil Procedure to bring a summary judgment motion against the Woodall defendants.

[37] In a decision dated March 17, 2016, Thomas J. dismissed the motion. I have earlier referred to portions of this decision.

[38] The costs awarded to the defendants on the motion totalled $6,654.85.

[39] The plaintiff subsequently sought leave to appeal the decision of Thomas J. This motion for leave to appeal came before Rady J., and leave was not granted. Costs on this leave to appeal motion totalled $2,458.71, again against the plaintiffs.

[40] As a result of the unsuccessful proceedings before Thomas and Rady JJ., there are outstanding orders for costs against the plaintiffs totalling $9,113.56.

[41] Following the decision of Rady J., the Woodall defendants wrote to plaintiffs’ counsel on July 14, 2016, July 20, 2016, August 2, 2016 and September 9, 2016 seeking payment of the costs. They did not receive any response to those letters.

[42] As a result of these outstanding and unpaid costs, the Woodall defendants brought a motion seeking to strike out or alternatively to stay the claim of the plaintiffs. That motion was heard by Carey J. on January 17, 2017.

[43] While acknowledging that they are in default on the costs orders, the plaintiffs asserted that they could not pay because of impecuniosity. Justice Carey noted that the remedy sought was “extreme” and should only be “used sparingly.” [7] He concluded that the defendants have not shown any prejudice to justify striking the claim. As well, he found that because the plaintiffs are without funds and had not brought the summary judgment motion or motion for leave to appeal frivolously, the “extreme consequences to the plaintiffs sought by the motion are not warranted in the circumstances.” [8]

[44] By notice dated February 3, 2017, the defendants brought a motion seeking leave to appeal the decision of Carey J.

Positions of the Parties

The Woodall Defendants

[45] The Woodall defendants submit that they should not be deprived of their right to seek an appeal of the decision of Carey J. They submit this will ensure that the parties avoid the costs of a trial that might ultimately be struck, or stayed, depending on the outcome of the appeal process.

[46] Further, it was the actions of the plaintiffs themselves that have led to the current impasse. That is, they made the decision to bring the motion for leave to bring a partial summary judgment motion before Thomas J. that failed. They then sought leave to appeal and were unsuccessful. They have been unwilling and unable to satisfy the two costs orders arising therefrom.

[47] Accordingly, the Woodall defendants submit that the plaintiffs should not now be able to insist on the original trial date without regard to their right to seek leave to appeal.

Plaintiffs

[48] The plaintiffs urge the court to dismiss the motion and leave the matter on the trial list for April 3, 2017 for the following reasons:

i) The matter was set down for trial in 2014 and a trial date has been set since December 2015. ii) In the event an adjournment is granted, the delay to obtain a new trial date for a four-week trial will be lengthy. iii) An adjournment of the trial will be unduly hard on Mr. Popovich, who is in a difficult financial situation, at least partly because of the very actions of the Woodall defendants that give rise to this trial. iv) Given the unstable financial position of the plaintiffs, an adjournment might deprive them of the ability to ever have the trial held.

[49] To summarize, the issue is whether the plaintiffs’ desire for the trial to commence when scheduled has paramountcy over the fact that the Woodall defendants are seeking leave to appeal the decision of Carey J.?

Analysis

[50] For the reasons that follow, I am granting the Woodall defendants’ motion to adjourn the trial scheduled for the trial sitting commencing on April 3, 2017.

[51] To have this matter proceed to trial may well result in conflicting outcomes. For example, the plaintiffs could succeed after a four-week trial only to have the Woodall defendants be successful on the appeal, potentially resulting in the action being struck or stayed.

[52] In Atlas Construction Inc. v. Brownstones, [9] the court assesses the relative prejudice to the parties in a similar situation to the case before the court – a motion to adjourn a long-standing scheduled trial date to permit the hearing a pending appeal that was opposed by an impecunious plaintiff. In that case, D.S. Ferguson J. stated the following:

[21] The consequences of an adjournment are uncertain. The parties hope to obtain an early date for the hearing of the interlocutory appeal but have not yet obtained one. If I adjourn the trial the time already set aside for the trial will probably be lost and the continuance of the trial will be delayed. If the trial is adjourned and the appeal is successful then, depending on the outcome, new parties may intervene, pleadings may be amended, and further discovery held. If the outcome of the appeal permits much interlocutory activity I may have to declare a mistrial.

[22] The lien claimants have already suffered very great delay and expense and, practically speaking, may not be able to financially continue if there is much further delay.

[25] Perhaps most important, if I proceed there are very grave risks. If the Divisional Court grants the appeal then I will be in a conundrum. If they do not grant the appeal because of the decision I have made and there is an appeal from my judgment, the appellate court may disagree with my decision and order a new trial. That would clearly be a disaster for all parties.

[53] I am also persuaded by the decision in Spence v. Olivetti, [10] where Haley J. states, “I am not persuaded that there is any urgency or any prejudice to any of the parties if the trial is adjourned. ... Any proceedings now may well turn out to be worthless and a waste of time for both the parties and the court.”

[54] As well, Haley J. adopts the following logic of MacDonald C.J.A. of the British Columbia Court of Appeal in Esquimalt & Nanaimo Railway Company v. Dunlop:

I think, when an action is pending, and some question arises which may affect the course of the trial, and which is the subject of appeal to this Court, that the trial ought to be, in general - unless there are very special reasons otherwise—stayed until the Court of Appeal has dealt with the question which may have some considerable influence upon the course of the trial. [11]

Are there Special Reasons Otherwise?

[55] I conclude there are not any “special reasons” to maintain this case on the trial list and effectively disentitle the Woodall defendants from pursuing their appeal.

[56] In particular, while the plaintiffs will lose the trial date if an adjournment is granted, the Woodall defendants will be required to prepare for a lengthy trial that may ultimately be stayed and/or vacated should the appeal be successful. As well, due to the plaintiffs’ impecuniosity this will occur in circumstances where the Woodall defendants have no reasonable expectation that they will be able to recover not only the costs they are currently owed, but the substantial costs of a four-week trial should they be successful.

[57] In that event, the entire case would have to be re-tried. This would be both the “conundrum” and “disaster for all parties” that Ferguson J. envisioned in Atlas Construction. [12]

[58] It must be repeated that the plaintiffs initiated this series of events by seeking leave to bring a partial summary judgment motion. While they did so in a timely manner – well over a year before the scheduled trial date – their failure on both the motion for leave to bring a partial summary motion and then on the motion for leave to appeal set off the sequence of events that has brought this motion before the court.

[59] Having availed themselves of the processes available to them, albeit unsuccessfully, the plaintiffs now effectively seek to deprive the Woodall defendants of their right to seek leave to appeal the adverse ruling they received from Carey J.

[60] Plaintiffs’ counsel stated that if it was known before the trial date that leave to appeal had not been granted, the trial could proceed. However, when I inquired if counsel would concede that the trial should be adjourned if leave was granted, he was non-committal. He also acknowledged that if the trial started before the motion for leave to appeal was heard or decided, it would render the appeal moot as the motion under appeal would likely only have stayed the trial.

[61] Both of these responses are troubling to me. They demonstrate the very issues that need to be balanced in this case. The plaintiffs’ right to an adjudication of the issues at trial is not paramount to the exclusion of the rights of the Woodall defendants. To deny the Woodall defendants their right to seek leave to appeal on an issue which could have considerable impact on the trial is contrary to the rules of natural justice.

[62] Commencing the trial before the leave to appeal motion could be heard and decided would significantly and seriously erode the access of the Woodall defendants to justice. While an adjournment of the trial will delay the plaintiffs’ right to have the trial held, it does not permanently deprive them of their substantive right to have their claim adjudicated.

[63] As I indicated in Refac Industrial Contractors Inc. v. 1603878 Ontario Limited, 2016 ONSC 5829, [13] the possibility of this litigation proceeding on separate litigation paths is not an effective use of judicial resources.

[64] Accordingly, I hereby order the following:

1. The trial scheduled for the trial list before this court on April 3, 2017 is struck from the trial list.
2. If leave to appeal is denied, a new trial date is to be set by the Trial Co-ordinator in consultation with counsel promptly thereafter.
3. If leave to appeal is granted, a new trial date is to be set by the Trial Co-ordinator in consultation with counsel promptly following completion of the appeal in accordance with the appeal decision and/or any direction regarding the trial dictated by the appellant court.
4. In the current circumstances, there is no order for costs. It is reasonable that all counsel appeared before the court to have a determination of these complicated adjournment issues.

“original signed and released by King J.” George W. King Justice

Date: March 8, 2017