Court File and Parties

CITATION: Greenwald v. Ridgevale Inc., 2017 ONSC 3960

COURT FILE NO.: CV-11-423611

MOTION HEARD: 20170614

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Joseph Greenwald and Stephanie Greenwald, Moving Party Plaintiffs

AND:

Ridgevale Inc., Danny Atkin, Debbie Tessler, Monterey Park Inc. and Abraham Barry Davis, Responding Party Defendants

BEFORE: Master Jolley

COUNSEL: Mark Ross and S. Sam, Counsel for the Moving Party Plaintiffs

David Steinberg, Counsel for the Responding Party Defendants Monterey Park Inc., Ridgevale Inc., Atkin and Tessler

Antonios Antoniou, Counsel for the Responding Party Defendant Davis

HEARD: 14 June 2017

REASONS FOR DECISION

Background

[1] This claim is essentially a claim for construction deficiencies.

[2] In 2007 the defendant Danny Atkin ("Atkin") approached his aunt, the defendant Debbie Tessler ("Tessler"), with the idea that they together purchase a property, renovate it and resell it (the "project"). Atkin had construction experience. He needed assistance with the administration and bookkeeping end of the business and help in financing the purchase and renovations. Tessler was and is an officer and director of the defendant Monterey Park Inc., a firm that manages commercial and residential properties and has been in business for 30 years. Atkin has no role in Monterey Park.

[3] Tessler agreed with Atkin's proposal and the two incorporated the defendant Ridgevale Inc. in December 2007 as a single purpose corporation to purchase, renovate and resell the property located at 20 Ridgevale, North York (the "property"). Ridgevale obtained a mortgage from HSBC, which Monterey Park guaranteed.

[4] In January 2009, the plaintiffs entered into a purchase and renovation contract with Ridgevale for the property. In April 2011 they sued Ridgevale, Atkin and Tessler and their real estate lawyer Mr. Davis claiming damages for alleged deficiencies. As against Atkin and Tessler the plaintiffs allege that Ridgevale fraudulently transferred funds to the two directors.

[5] In 2016 the plaintiffs amended their claim to add Monterey Park. The plaintiffs claim that the Ridgevale mortgage funds were directed to Monterey Park, that the expenses for the project were paid by Monterey Park, that Ridgevale transferred the closing proceeds to Monterey Park to avoid any claim for deficiencies, that Ridgevale is a sham corporation and that Monterey Park is its alter ego.

[6] Monterey Park admits that it provided financing and bookkeeping assistance to Ridgevale but denies that it was Ridgevale's alter ego and denies that it received any profit or other form of gain.

[7] On this motion, the plaintiffs seek an order compelling Monterey Park to provide a further and better affidavit of documents including, in particular, its income tax returns, financial statements, general ledgers and working papers for the period December 2007 to 2012, which was narrowed to 2007 to 2009 inclusive in argument.

[8] Monterey Park takes the position that it has demonstrated through its current productions that none of the costs or expenses or revenues related to the project were commingled or booked to Monterey Park's account. Further, it argues that the additional records are not relevant, are a fishing expedition and, in any event, offend the principle of proportionality.

What has been produced to date

[9] Monterey Park kept a general ledger for the period November 2007 to March 2011 which it has produced and which details all the transactions relating to the project by date, type, payee, reason for payment and amount (the "Ridgevale general ledger").

[10] In addition to the Ridgevale general ledger, the defendants have also produced an internal income statement for Ridgevale prepared by Monterey Park, along with a balance sheet, a trial balance and an accounts payable aging summary, all as at 16 May 2011.

[11] Monterey Park has also produced all of the supporting documentation for the project by way of invoices, receipts, payment records and bank records. Additionally it has produced its own bank statements for the period September 2007 to May 2009 and copies of the cheques written on the account.

[12] The productions to date already show that Monterey Park paid the original deposit for the purchase of the property and paid all the expenses for the property from its own funds from December 2007 to October 2008 when Ridgevale obtained $500,000 in mortgage financing from HSBC. Thereafter those mortgage funds were transferred to Monterey Parks general bank account and used to pay the project's expenses. It is conceded that Monterey Park paid those ongoing expenses using its own cheques and recording the expenses against the Ridgevale mortgage proceeds in the Ridgevale general ledger.

[13] Based on the productions to date, the plaintiffs are well aware that Monterey Park paid all the expenses for the project from November 2007 to October 2008, are aware that Monterey Park has characterized the payments as a loan and are aware that all the expenses were paid with cheques written on the Monterey Park bank account.

[14] The plaintiffs have pleaded that the mortgage funds raised by Ridgevale for the construction financing were directed immediately to Monterey Park. That is not contested and is demonstrated by the Ridgevale general ledger.

What is sought to be produced in addition and why

[15] The plaintiffs seek production of Monterey Park's income tax returns, financial statements, general ledgers and working papers for 2007 to 2009. They argue that the additional productions will serve four purposes:

(a) they will demonstrate that Monterey Park was the true party to the construction contract;

(b) they will show that Monterey Park commingled the Ridgeway funds with its other business activities;

(c) they will demonstrate that Monterey Park wrote off expenses related to the project or declared a capital gain or loss related to the project; and

(d) they will demonstrate that Monterey Park paid suppliers to the project directly from its own funds.

[16] All of this, it is argued, will support the plaintiffs' position that Ridgevale was a sham.

[17] They argue that the documentation is relevant to the allegations made in the second amended statement of claim that Monterey Park was an alter ego of Ridgevale (paragraph 3), that the mortgage funds raised by Ridgevale for the construction financing were directed immediately to Monterey Park (paragraphs 30 and 31), that all expenses for the construction of the project were paid out of Monterey Park accounts (paragraph 30) and that the closing proceeds were directed to Monterey Park (paragraph 33).

[18] As noted in paragraphs 11 to 13 above, the vast majority of these allegations are already addressed in the productions of Monterey Park to date which show the transfer of the mortgage funds to Monterey Park, the payment by Monterey Park of the expenses and the treatment of the closing proceeds.

A. Income Tax Returns

[19] It has not been demonstrated to me that the production of the Monterey Park income tax returns for 2007 to 2009 will serve any of the purposes outlined above. Monterey Park carries on business as a property management firm owning and managing commercial and residential properties, a business more extensive than the services it rendered to Ridgevale for the project.

[20] Whether Monterey Park commingled funds or paid expenses directly will not be identified in an income tax return and, as such, are not relevant to the allegations pleaded. That information will appear, if anywhere, in the Monterey Park bank statements that have already been produced and which already demonstrate a transfer of $536,762.30 into the Monterey Park account on 14 October 2008, the same day as the Ridgevale mortgage.

B. Financial Statements, General Ledgers and Working Papers

[21] The Monterey Park financial statements might contain an entry on a write off or payment of an expense or speak to the characterization of the loan from Monterey Park to Ridgevale. However, this does not make relevant or justify a wholesale production of three years of financial statements for a company that has an independent unrelated business from Ridgevale. The same can be said for the general ledgers and the working papers.

[22] Monterey Park has a pending summary judgment motion for which Tessler can be cross examined on her affidavit. Her counsel concedes that questions as to whether Monterey Park booked the transaction as a loan and whether it took a write off of the loan would be relevant.

[23] Tessler has deposed that the expenses were booked as expenses to Ridgevale and were not booked as expenses to Monterey Park. Her counsel also concedes that the plaintiffs can ask questions on cross examination about whether the Ridgevale expenses were accounted for in the Monterey Park calculation of net income and confirms that questions about Monterey Park's accounting practice vis a vis Ridgevale expenses and the accounting of those expenses will not be refused.

[24] I find that the requested documents – the Monterey Park financial statements for 2007-2009, the general ledgers for 2007-2009, the income tax returns for 2007-2009 and the working papers for 2007-2009 will not tend to prove or disprove a matter in issues and are, as a result, not relevant (Sky Solar (Canada) Ltd. v. Economical Mutual Insurance 2015 ONSC 4714 at para 25). These additional requests will not shed light on the role of Monterey Park and whether it was an alter ego. The existing productions already set out that role and the relationship between the corporate parties.

[25] The plaintiffs did not just ask for production of a note to the financial statements referencing a related party loan or a loan write off or for production of the general ledger entry dealing with the loan but sought the entire three years of financial history. To the extent there might a needle of limited information in the haystack of requested documents, the request for three years of financial statements, general ledgers, working papers and income tax returns does not honour the principle of proportionality (Warman v. National Post Co. 2010 ONSC 3670 at paras 84-86).

Conclusion

[26] For the reasons noted above, the plaintiffs' motion for a further and better affidavit of documents from Monterey Park is dismissed.

[27] The plaintiffs also sought an order amending the timetable of Master Muir to provide that discoveries may be completed and the matter set down for trial by 31 December 2017. The defendants consented to this relief and I order that the timetable be amended accordingly.

[28] If the parties cannot agree on costs, they may provide me with submissions no more than 3 pages in length by 7 July 2017.

Master Jolley

Date: 27 June 2017