Court File and Parties

COURT FILE NO.: 08-CL-7399 DATE: 20170704 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

BETWEEN:

PATRICIA BUCCILLI and DRAPERY INTERIORS ETC. INC. Plaintiffs

• and -

PASQUALE PILLITTERI, also known as PAT PILLITTERI, CHRISTINA PILLITTERI, PATRON CONTRACTING LIMITED, also known as CDC CONTRACTING, BIRCHLAND HOMES INC. and VENDRAIN INC. Defendants

BEFORE: Newbould J.

COUNSEL: Orestes Pasparakis and Lynne O’Brien, for the Ernst & Young Inc. Linda Galessiere, for the Defendants

HEARD: May 19, 2017

Endorsement

[1] On November 23, 2012, the plaintiff Patricia Buccilli was found to be entitled to a one-third interest in the defendants CDC Contracting, Vendrain Inc. and Birchland Homes Inc. as well as in all money, benefits and opportunities withdrawn or diverted from these companies over a period of many years by the individual defendants Christina Pillitteri and Pat Pillitteri.

[2] Ernst & Young Inc. (the Expert or EY) was appointed as an independent expert by order of April 17, 2013 to investigate and identify all money, benefits and opportunities withdrawn or diverted by the individual defendants, either directly or indirectly through their companies or family members, and to trace those diverted assets.

[3] After over three years of work by EY, the plaintiff and the Pillitteris managed to settle their dispute. EY now brings a motion to approve its fees and conduct and the fees and disbursements of its counsel Norton Rose Fulbright Canada LLP (Norton Rose). The fees are large. The fees of the Expert for the period April 8, 2013 to January 31, 2017 are $2,189,525 net of taxes and disbursements. The fees of Norton Rose for the same period are $518,491 net of taxes and disbursements. The defendants challenge the work done by E&Y and Norton Rose and the quantum sought and say the reduction should be $1 million or more.

[4] EY is a court appointed officer. Recent case law dealing with fees of a receiver appointed by the court has been applied to the fees of a Monitor and in my view the same test can usefully be applied to EY in this case, with the recognition that the work involved was investigative and unfinished when the mandate of EY concluded as a result of the settlement of the parties.

[5] So far as the test for reviewing a receiver’s fees is concerned, the New Brunswick Court of Appeal in Belyea v. Federal Business Development Bank (1983), 44 N.B.R. (2d) 248 (C.A.) referred to a number of factors to be considered. These factors have been accepted in Ontario as being a useful guideline but not an exhaustive list as other factors may be material in any particular case. See Confectionately Yours Inc., Re (2002), 36 C.B.R. (4th) 200 at para. 51 (Ont. C.A.) (“Bakemates”) and Bank of Nova Scotia v. Diemer, 2014 ONSC 365 at para. 5 (S.C.J.), aff’d (2014), 2014 ONCA 851, 20 C.B.R. (6th) 292 (Ont. C.A.). In Diemer, Pepall J.A. listed the factors as follows:

33 The court endorsed the factors applicable to receiver's compensation described by the New Brunswick Court of Appeal in Belyea: Bakemates, at para. 51. In Belyea, at para. 9, Stratton J.A. listed the following factors:

• the nature, extent and value of the assets;
• the complications and difficulties encountered;
• the degree of assistance provided by the debtor;
• the time spent;
• the receiver's knowledge, experience and skill;
• the diligence and thoroughness displayed;
• the responsibilities assumed;
• the results of the receiver's efforts; and
• the cost of comparable services when performed in a prudent and economical manner.

These factors constitute a useful guideline but are not exhaustive: Bakemates, at para. 51.

Justice Pepall further stated:

45 … That said, in proceedings supervised by the court and particularly where the court is asked to give its imprimatur to the legal fees requested for counsel by its court officer, the court must ensure that the compensation sought is indeed fair and reasonable. In making this assessment, all the Belyea factors, including time spent, should be considered. However, value provided should pre-dominate over the mathematical calculation reflected in the hours times hourly rate equation. Ideally, the two should be synonymous, but that should not be the starting assumption. Thus, the factors identified in Belyea require a consideration of the overall value contributed by the receiver's counsel. The focus of the fair and reasonable assessment should be on what was accomplished, not on how much time it took. Of course, the measurement of accomplishment may include consideration of complications and difficulties encountered in the receivership.

[6] At the outset, it is well to consider the wide scope of the mandate of EY and the difficulties caused by the lack of co-operation provided by the defendants. EY was obliged to investigate the businesses, undertakings and assets of the defendants, requiring EY to:

(a) review, consider and reconstruct the results of decades of business history including the identification of a large number of business interests in the construction and real estate sectors and transactions affecting those interests. As EY noted, through its investigation, it connected the defendants to 156 entities, 87 properties and 97 bank accounts; (b) link the identified business interests to the defendants as possible money, benefits and opportunities withdrawn or diverted; (c) process and consider the huge amount of historical information that was accumulated over the years from various sources. The number of electronic documents alone exceeds 800,000; and (d) trace benefits and opportunities.

[7] On more than one occasion I referred to the high cost caused by the conduct of the defendants:

In an endorsement of January 30, 2015 I stated: It is quite clear that they have not been open and forthright with E&Y...In short, much of the expense incurred has been due to the lack of honest and open co-operation of one or more of the defendants…

Over a year later on March 9, 2016 I stated: The E&Y costs have been enormous in large measure due to the failure of the defendants to properly and timely disclose all relevant information.

[8] I need not itemize the problems raised by the defendants. Some are contained in paragraphs 24 to 27 of the EY factum.

[9] The various complaints made by the defendants must be seen in the light of their conduct. The defendants raise several reasons why the accounts should be reduced. I shall deal with them.

[10] The defendants first assert that EY considered from the outset that its mandate was “impossible” to complete and that from at least January 2015 it considered asking the Court to release it from its mandate. They assert that at no time did EY advise the parties or the Court of its concerns, but instead continued to bill hundreds of thousands of dollars for a mandate it thought was impossible.

[11] I do not accept this assertion. There is no doubt that EY thought the mandate challenging. It was. EY did not stay silent. Its reports were full of the challenges. In the sixth report, EY stated that there could be no assurance that it will be able to reach definitive conclusions as a result of factors raised in the report. It asked for further directions and these were ordered. In the seventh report of December 16, 2015, EY stated that it would await further direction and instructions from the Court before proceeding with further work. In that report it stated:

The Expert has reservations on the reliance to be placed on explanations provided by the Defendants without accompanying corroborating information or documentation. The Expert has found a number of the Defendants’ explanations incomplete, inconsistent with other contemporaneous information, or change as additional information becomes available.

The Defendants’ approach to requests by the Expert for information or explanations which has at times been adversarial. The Defendants have insisted that (i) only information specifically requested will be provided, rather than providing comprehensive explanations or providing all information that was available to the Defendants; and (ii) all information has been provided to the Expert when it has not been so provided;

Often, however, the Expert has had to make several requests for answers to be provided and some requests remain unanswered after many attempts to follow up. For example, the Defendants have failed to account for all of the proceeds Pat received from the sale of land at the northeast corner of Bayview and Elgin Mills in May 2014, notwithstanding that this is a recent transaction and the information should be available, particularly in light of the Court Orders in this proceeding, and the requests for Pat to identify the bank account into which he deposited the funds and the bank account from which he paid funds into the McLean & Kerr LLP trust account.

The difficulty obtaining accurate and complete information from the Defendants has caused delays and increased the costs of this investigation. The Expert found that, engaging with the Defendants regarding their responses or lack of responses is not always productive and so has resorted to third parties and publically available information to identify assets and understand transactions.

[12] Prior to this seventh report, counsel for the defendants took the position that a further report to the court was not necessary. She was offered the opportunity to raise the matter at a 9:30 am appointment but chose not to. The report was prepared and was instrumental in the relief granted to the plaintiffs on March 9, 2016.

[13] The second complaint of the defendants is that EY repeatedly alleged wrongdoing on the part of the defendants as justification for its excessive fees but refused to provide any information to substantiate this bald allegation. There is nothing in this complaint. The EY reports are full of information on this issue. The cross-examination of Mr. Savage relied on for this complaint does not substantiate it. He simply said that he should not be speculating about what might have happened if EY had got a complete list of assets from the Pillitteris.

[14] The third complaint is that EY could not verify the accuracy of information in the first six reports and could not attest to the accuracy of information completed by others for the supplemental sixth report and the seventh report. The defendants say that the cost of preparing these reports should therefore be refused. I disagree.

[15] Mr. Savage was the EY partner whose affidavit was used on this motion and he was cross-examined. His evidence was that Mr. Mike Dean was the engagement partner for the first six reports but had left on medical leave in December 2014 and was not available to EY for this motion. While Mr. Savage was involved in the preparation of the first six reports, he did not have first-hand knowledge of all of the issues covered in the reports and therefore could not personally attest to the accuracy of those reports. For the sixth supplementary report and the seventh report, Mr. Savage on cross-examination said he did not do all of the field work and he agreed that he could not attest to 100% the accuracy of what other people did.

[16] None of this is surprising. Court reports by court officers invariably involve work by a number of persons in a firm, and this case for sure is no different. No one person could expect to have firsthand knowledge of all of the work done. The hours worked by various persons were recorded in dockets of EY and reflected in its accounts attached to the affidavit of Mr. Savage. It would do little good to provide affidavits of each person to say that they recorded their docketed time accurately. As counsel for the defendants stated on her cross-examination of Mr. Savage, it is the same with lawyers when work is given to others, in that they expect that docketing is done appropriately. There is no suggestion that the work was inaccurately recorded.

[17] The fourth complaint is an assertion that EY made false and misleading statements regarding significant matters in the EY seventh report. This is an unfortunate allegation against a firm of professionals and it should not have been made. It is not at all supported. It is based on two statements in the report that EY did not have sufficient information to determine which bank accounts funds were deposited into. On cross-examination, Mr. Savage indicated that it would have been possible to know which bank accounts into which funds were deposited based on information provided by the Pillitteris’ son on the motion.

[18] However, the fault is really that of the Pillitteris. In the seventh report, EY made clear that the report was based on information available to it at the time and stated:

The Expert has sought to identify all assets owned by the Defendants, to understand how those assets were acquired and, where applicable, disposed of. In most instances, the Expert is only able to state the particular facts of which it is aware with respect to certain discrete assets, benefits or opportunities, comment and suggest further areas of inquiry.

This Seventh Report was prepared based on this information available to and reviewed by the Expert as of December 15, 2015. It is possible that additional information may be provided that could cause the Expert to supplement or amend this Report.

[19] The two complaints raised by the Pillitteris relate to the following:

(a) Paragraph 29 (a) of the seventh report referred to a bank draft in the amount of $1,422,060.57 in the name of CDC and the Expert noted that it could not determine into which CDC account the draft had been deposited. During his cross-examination, Mr. Savage agreed that the bank draft had an account number on it, and the defendants assert as a result that that the Expert’s comment in the report was inaccurate. However, as of the date of the seventh report, there was significant uncertainty about CDC's accounts: (i) the defendants had only identified CDC as having one bank account at Laurentian; (ii) the bank account number on the draft did not match the Laurentian bank account; (iii) the defendants had failed to confirm to the Expert that the account number on the bank draft was a CDC account; and (iv) the defendants had refused to respond to the Expert’s request that they confirm a list of bank accounts the Expert had identified. (b) Paragraphs 29 (b)(ii) and 29(d) of the seventh report refer to a bank draft in the amount of $232,628 that was purchased by Christina Pillitteri and payable to CDC and to three bank drafts purchased by Vendrain Inc. in the total amount of $551,957.18 which were also payable to CDC. EY commented in the seventh report that it could not determine into which bank accounts these funds had been deposited or how they had been recorded by CDC. Mr. Savage acknowledged on his cross-examination, after being shown a series of documents, that EY might have been able to piece together these transactions from CDC’s general ledger and agreed that the statements in the report regarding how they were recorded appeared inaccurate. However, to say a lie was made in the report is wrong. There may have been an error in connecting dots but EY should not have been required to do so or to build records from general ledgers of the various companies. The information relied on by the defendants was only provided in an affidavit of the Pillitteri’s son sworn April 17, 2017 on this motion. It was not provided to EY following the seventh report, in which feedback was invited, nor prior to the motion for summary judgment. It ought to have been.

[20] The fifth complaint of the defendants is that every task undertaken by EY would have been completed regardless of what the defendants did or did not do. I frankly do not understand the complaint and the evidence relied on does not make it any clearer. That evidence given by Mr. Savage on cross-examination is to the effect that EY never intended to rely just on what Mr. Pillitteri told them and then report to the Court and that the information regarding the continuity of the various property transactions that was provided was not sufficient and required EY to try to undertake that task.

[21] The sixth complaint is an allegation that EY was unable to advise what extra time was required for additional work due to the conduct of the defendants. There is nothing in this. On his cross-examination Mr. Savage said that if the defendants had provided the required information, things would have been a lot easier to verify. He said he could not say how many hours in excess of the hours that he spent or say the exact number of hours that resulted from it. This is not surprising. The time spent for all of the things done is recorded. It hardly lies in the defendants’ mouths to complain that what was extra or just incurred ordinarily due to the defendants’ refusal to provide information or their providing misleading information was not precisely available.

[22] The seventh complaint is an allegation that EY was “chronically careless” in its review of information/documentation provided to it and routinely failed to review it. It is said that EY repeatedly asked many questions and asked for documentation previously asked for and provided. It refers to other matters that are trivial. It says that EY never reviewed CDC’s books and records.

[23] I do not accept this complaint. It is conceded by EY that it sometimes asked the defendants multiple questions regarding the same issues. However, this was done in order to seek clarification as answers provided by the defendants often changed over time, conflicted with their previous evidence or conflicted with evidence provided by third parties. For example, Bobby Pillitteri, the son of the Pillitteris, appended a list of assets to his affidavit sworn June 12, 2013 and stated that the list was complete and that “I do not believe I can provide anything further given the information and documents in my possession”. This asset list was different from (i) the information contained in the “Black Binder” which the defendants delivered to the Expert in the summer of 2014; (ii) the information provided by counsel for the defendants in September 2014; and (iii) the chart provided by counsel for the defendants in February 2015. EY asked questions regarding all of these deliveries to try to resolve inconsistencies and ensure it had a complete understanding.

[24] It is clear that EY did review CDC records. The Pillitteris rely on a statement on cross-examination of Mr. Savage in which it was put to him that when Mr. Pillitteri took him to the upstairs mezzanine storage room, no one opened the boxes. Showing a bunch of boxes of documents to EY was not what was required of the defendants and to quarrel now with that is fanciful. The fact that Mr. Savage could not swear to what bank statements others at EY looked at is not evidence that they were not looked at. The EY reports make clear that EY did look at the records of CDC and the information provided by the defendants, including interviewing CDC employees and its external accountant about those books and records.

[25] The eighth complaint is that although EY was retained in 2013, not a single property has been assessed in spite of the fact that the mandate of EY included an investigation of the growth and profits diverted from or through CDC, Birchland or Vendrain. That may be, but it is hardly a reason to deny fees for what was done. If the suggestion is that the failure to consider the ultimate profits improperly derived by the defendants means the work that was done was not worthwhile, I do not accept that. The reports were all useful to the court and were the basis for many orders made. The seventh report made clear that more work would need to be done. Had the defendants been more forthcoming with the truth from the outset of EY’s mandate, it may have been possible for EY to calculate with some precision the profits improperly derived by the defendants.

[26] The ninth complaint is that Mr. Savage could not verify the time dockets of others at EY. I have dealt with this in dealing with the third complaint. The accounts were attached to the affidavit of Mr. Savage in the usual way. The accounts were electronic business records made in the ordinary course of business and are admissible as prima facie evidence of the facts stated in them. See Ares v. Venner and R. v. Monkhouse, 1987 ABCA 227.

[27] The tenth complaint is that EY is still unable to estimate how much more time and expense would be required to complete the mandate. In argument it was said that this indicates that EY was unfocussed. There is nothing in this complaint. It is clear from the seventh report that more work would be required. It would be impossible in an investigation, particularly of persons who have been untruthful and careless in what they have reported, to say exactly what would be required to finish the task.

[28] The eleventh complaint is that EY has no idea of whether the outstanding information requested of the defendants is relevant. That is hardly a complaint. Whether the response contains relevant information surely depends on what the response is. I have seen no evidence that EY asked questions that it thought were irrelevant.

[29] The next complaint is that EY was not objective and conducted itself as if it were aligned with the plaintiff. I do not accept that complaint at all. EY was appointed by the court to investigate, value and report. It was frustrated by the actions of the defendants. But it did not align itself with the plaintiff. Mr. Savage on cross-examination denied that the relationship with the defendants was adversarial. He said that there were times when it was frustrating to collect the information because it was slow, because it was difficult to come by, because it was incomplete and because it was inconsistent.

[30] The defendants take issue with EY’s approach to obtaining information from the DeCiccos. The DeCicco family was once close to the Pillitteris and business partners. However they had a falling out. Mrs. DeCicco gave evidence at the trial adverse to the Pillitteris and it was clear had documentary evidence that would be helpful to the mandate of EY. The approach of EY to the DeCiccos was discussed in its sixth report. The Pillitteris wanted to be provided with all information that EY obtained from the DeCiccos. There was ongoing litigation between the Pillitteri interests and the DeCicco interests and the DeCiccos had a concern that the EY mechanism of getting documents from them could be a way to circumvent the production of documents in that litigation. The DeCiccos did not want the information to be disclosed to the Pillitteris, and EY did what it could to alleviate their concerns. I do not see the evidence as indicating any bias on the part of EY towards the plaintiff.

[31] The next complaint is that there was necessarily duplication of work by various EY personnel caused by the leaving of the firm for health reasons by Mr. Dean and his replacement by Mr. Savage and by all of the personnel who worked on the mandate. The fact that a number of people worked on the matter does not mean that that “would necessarily result in inefficiencies and duplication of work” as argued. The evidence of Mr. Savage regarding the staffing of the mandate is to the contrary. Moreover, $360,812 of time billed was written off by reason of (i) new resources being brought on board and on-boarding time that was not billed amounting to $88,115; (ii) administrative work by professional staff amounting to $21,318; (iii) travel time amounting to $4,113 and (iv) other time which in the view of EY was fair and reasonable to write off amounting to $246,633.

[32] The next complaint is that EY has charged a 9% administrative fee. When EY was first contacted, it provided a summary of the rates and fees that would apply to the engagement. It is a normal charge for EY. It applies to EY’s technology tools, including the processing and hosting of electronic documents, administrative support personnel, printing and other routing expenses. There is no evidence that this administrative fee is not reasonable. Based on Mr. Savage’s evidence, I find that the administrative fee of 9% is reasonable. Mr. Savage points out in his affidavit that the cost of operating the Relativity database (a cloud based electronic document storage system) was approximately $225,000, which is more than the 9% administrative fee charged in this case.

[33] Finally, the defendants question the use of Norton Rose by EY. In this case, it is hardly surprising that EY retained counsel. It had a right to do so, and the events that have unfolded, including the challenge to the approval of its accounts, indicate that it was wise to do so. During its engagement, EY came to court often, and with justification. Had the defendants co-operated honestly and fully from the outset, all of these court appearances may not have been necessary. During the process, the defendants under oath asserted that EY was wasteful, unproductive and not neutral. It would have been foolhardy for EY not to retain counsel.

[34] It is contended that the choice of Norton Rose was inappropriate because that firm is too expensive. I do not accept that. EY is a leading firm and entitled to the lawyers of its choice. When the first account of Norton Rose which disclosed the hourly rates was provided to the defendants’ prior lawyers, those lawyers advised that they took no issue with the account. In this case, the engagement partner Mr. Pasparakis, billed only 19.3 hours and the majority of the work was done by Ms. O’Brien, a 1994 call, who billed 744.5 hours at an average hourly rate of $575. That is certainly a reasonable rate. The problem for the defendants is not that an inappropriate firm was chosen by EY to act for it or that billing rates were too high, but rather that the defendants are the author of their own misfortune in failing to act appropriately. They are the ones who caused these enormous fees.

Conclusion

[35] Taking into account the factors referred to in Diemer, particularly the professionalism of EY, the large number of defendant entities, properties and bank accounts that had to be investigated, the roadblocks thrown up by the defendants to the work required by EY and the fact that while the work was not completed, it was of critical importance to the Court including the partial summary judgment award, and likely helpful to the settlement of the action, I approve the accounts of EY and its counsel Norton Rose.

[36] I approve the conduct of EY as described in its first to the seventh reports, including the supplement to the sixth report. I also find that the accounts of EY and of its counsel Norton Rose listed in schedules A and B of the EY notice of motion are reasonable and they are approved.

Costs

[37] EY is entitled to its costs of this motion on a full indemnity basis. The order appointing EY entitles it to its full costs. The costs must be reasonable. The work for this motion was significant. Moreover the allegations of misconduct of EY, including the making of alleged false statements and accusations of lying made on the cross-examination of Mr. Savage, should not have been made and also lead to an order for costs on the highest scale.

[38] EY has filed its cost outline claiming actual fees of $130,793.50, substantial indemnity fees of $93,406.50 and partial indemnity fees of $62,271, all plus HST. In contrast, the cost outline filed on behalf of the defendants claims fees only on a partial indemnity basis of $45,000. The reasons for the difference are higher hourly rates and more time docketed by the Norton Rose lawyers.

[39] Like the work on the file generally, the bulk of the work at Norton Rose was done by Ms. O’Brien. Her rate was reasonable. Mr. Pasparakis’ rate is high, and had he done more work than he did, I would have been inclined to make some reduction for it. This was not the most complicated of motions, but it was hard fought.

[40] I cannot say that the hours spent were unreasonable. There were many allegations made, including allegations of wrongdoing. The making of such allegations often does not take the time required to respond to them, and I see that as being the case here. I cannot say that the time spent was unreasonable.

[41] The claim for disbursements is unremarkable and the disbursements are allowed. In the circumstances, I set the fees and disbursements of Norton Rose including HST at $145,000, to be paid by the defendants.

[42] EY has claimed fees of $24,000 for work done by Mr. Savage at $600 per hour. EY is entitled to be compensated for its work and the amount claimed is reasonable. I set the fees of EY including HST at $27,120, to be paid by the defendants.

Newbould J. Date: July 4, 2017