CITATION: Winter v. Sherman, 2017 ONSC 5492
COURT FILE NOS.: CV-07-326360PD3
DATE: 20170915
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KERRY J.D. WINTER, PAUL T. BARKIN and JULIA WINTER, personal representative of DANA C. WINTER, deceased and JEFFREY A. BARKIN
Plaintiffs
– and –
BERNARD C. SHERMAN, MEYER F. FLORENCE, APOTEX INC. and JOEL D. ULSTER
Defendants
Brad Teplitsky, for the Plaintiffs
Jeffrey A. Barkin, appearing in person
Katherine L. Kay & Mark Walli, for the Defendants
HEARD: July 6 & 7, 2017
hood j.
reasons for decision
Introduction
[1] The plaintiffs in this case are siblings, with the exception of Julia Winter, who is their sister-in-law. The plaintiffs’ parents, Louis and Beverly Winter, died when they were young. The defendant, Bernard C. Sherman (“Sherman”) was the Winters’ nephew and is the plaintiffs’ cousin.
[2] The Winters owned a number of companies that were involved in the pharmaceutical business (“the Empire Companies”). Royal Trust Company and Royal Trust Corporation of Canada (“Royal Trust”) was the executor of the Winters’ estates, and administered the estates until 1994. The plaintiffs are the beneficiaries of the estates.
[3] In 1967, Royal Trust sold the Empire Companies to Sherman and his business partner. In 1974, Sherman founded Apotex, another pharmaceutical company.
[4] In 2006, the plaintiffs started an action against Royal Trust alleging, among other things, that Royal Trust was negligent in the enforcing and drafting of an option agreement and a royalty agreement with Sherman as part of the sale of the Empire Companies. For the purposes of this motion, I am only concerned with the option agreement. Simply put, the plaintiffs blamed Royal Trust for permitting Sherman to get away with dishonouring of the option agreement, which they said entitled them to 20% of Apotex.
[5] In 2007, the plaintiffs started this action against Sherman, alleging that he breached the fiduciary duty he owed to them by dishonouring the option agreement and that they were entitled to 20% of Apotex or the equivalent in damages.
[6] Royal Trust brought a motion for summary judgment seeking a dismissal of the action against it in its entirety. On June 26, 2013, Justice Perell granted part of Royal Trust’s motion and dismissed the part of the action dealing with the option agreement. The plaintiffs appealed. On June 16, 2014 the Court of Appeal dismissed the appeal.
[7] Sherman now moves for summary judgment, arguing that this action is an abuse of process and, alternatively, that there is no genuine issue requiring a trial. The defendants argue that this claim is not an abuse of process, and that the issue between the parties is whether Sherman owed them an ad hoc fiduciary duty in relation to their interest in obtaining employment in Apotex and a 20% equity position in Apotex. The defendants agree that the issue of whether Sherman owed an ad hoc fiduciary duty is amenable to a summary judgment motion.
[8] For the following reasons, the plaintiffs’ action should be dismissed and the defendants’ motion for summary judgment granted.
Facts
[9] Louis and Beverly Winter passed away in 1965 within 17 days of each other. The plaintiffs are their children, with the exception of Julia Winter, who was married to the late Dana C. Winter. The plaintiffs were young at the time of their parents’ deaths.
[10] The children were the beneficiaries of their parents’ estates. Royal Trust was appointed as executor of the estates.
[11] Sherman was the nephew of Louis and Beverly Winter, and is the plaintiffs’ cousin. When the Winters passed away, Sherman was at MIT working towards his PhD.
[12] Before his death, Louis Winter ran a number of companies involved in the pharmaceutical business (“the Empire Companies”). Sherman had worked for his uncle at the Empire Companies from time to time.
[13] When the Winters died, Sherman made an offer to Royal Trust in a letter dated November 25, 1965. He stated that he was “interested in purchasing all the assets of Louis and Beverly Winter relating to the pharmaceutical and chemical industries and am furthermore anxious to protect the value of the said assets for the benefit of the children of Louis and Beverly Winter”. He therefore proposed that he would “assume the position of General Manager of the pharmaceutical and chemical companies until January 31, 1966, in consideration of……the right of first refusal on the sale of the…..assets”, a salary, and the use of an automobile. His offer was open for one day. Royal Trust rejected the offer.
[14] The plaintiffs argue that this letter was a representation made to Royal Trust that Sherman would protect their future interests and that it was the start of what they argue was his Commitment and Undertaking giving rise to an ad hoc fiduciary duty owed to them.
[15] His offer rejected, Sherman continued with his studies. Royal Trust continued to run the Empire Companies. In 1967, however, Royal Trust decided to sell the Empire Companies’ business. The history of the sale is set out in Justice Perell’s decision at paragraphs 94 to 100 of his reasons; I will not repeat it here. Sherman and Joel Ulster’s offer of about $450,000 was the higher of the two offers, about $100,000 above the only other offer.
[16] The Sherman & Ulster offer also included an option for the Winters children to be employed by the purchased business and to acquire 5% of the shares of the company if employed for two years.
[17] The option had four pre-conditions attached; the opportunity of employment and subsequent acquisition of shares would only arise if all four pre-conditions were met. If any one of the conditions was not fulfilled at the point in time when the children were to have the opportunity of employment or share acquisition, Sherman’s obligations were to be null and void.
[18] Royal Trust had wanted stronger option terms that would have inhibited Sherman’s ability to resell the purchased business or take the Empire Companies public. Sherman refused such terms. As Justice Perell put it at paragraph 123 of his reasons:
Sherman was only prepared to offer a limited, qualified, contingent and conditional employment agreement and option agreement. He was asked to be more expansive and generous, but he would not be moved….Royal Trust did not leave any money on the negotiating table by negligently drafting the Option Agreement or by not squeezing Dr. Sherman to ensure that his promise extended to employment and an interest in any and every generic drug business in which he might become involved in the future.
[19] The shares in the Empire Companies were owned by Sherman and Ulster Limited (“S & U”). In 1969, S & U, entered into a share swap with the shareholders of Vanguard Pharmacy, S & U’s largest customer. As a result of this transaction, Sherman & Joel Ulster no longer controlled S & U.
[20] In late 1971, the shares in S & U were purchased by ICN, a publicly traded company. In exchange for his S & U shares, Sherman received ICN shares. While the option agreement arguably became null and void at the time of the 1969 share swap, it is clear – and was found by Justice Perell and confirmed by the Court of Appeal – that the option agreement was null and void after the sale to ICN in 1971.
[21] In 1974, Sherman founded Apotex, which is in the business of manufacturing and selling generic pharmaceuticals. As sworn by Sherman – and as found by Justice Perell and confirmed by the Court of Appeal – Apotex did not own or use any of the assets, goodwill, property or business of the Empire Companies. The definition of “purchased business” in the asset sale agreement of the Empire Companies and the option agreement does not apply to Apotex. At paragraph 157 of his reasons, Justice Perell found that “Apotex cannot be interpreted to be the “Purchased Business” under the Option Agreement……The Plaintiffs’ interpretation is wishful thinking beyond fanciful.”
[22] The plaintiffs’ claim against Sherman has gone through a number of revisions since it was first issued in 2007. The most recent version was amended on October 25, 2016. In it the plaintiffs plead that Sherman made a Commitment to Royal Trust to grow the Empire Companies for the benefit of the plaintiffs, as future shareholders and employees, which was one of the reasons Royal Trust agreed to sell the Empire Companies to Sherman and in order to provide some assurance that Sherman followed through on his Commitment, the option agreement was created.
[23] The plaintiffs then plead that in providing the Commitment to Royal Trust Sherman gave an Undertaking to the plaintiffs to act in their best interests and not to place his interests ahead of their own. This Undertaking gave rise to an ad hoc fiduciary duty to the plaintiffs which Sherman has breached.
[24] Sherman and Apotex are the focus of the plaintiffs’ complaints. There is no evidence of Joel Ulster being involved in any of the matters at issue. There is one reference to Myer F. Florence in Kerry Winter’s responding affidavit. The pleading makes very minimal reference to Ulster or Florence. The alleged Commitment and Undertaking were from Sherman and he, it is pleaded, is the ad hoc fiduciary.
Summary Judgment Principles
[25] Summary judgment is available where there is no genuine issue for trial: Hyrniak v. Mauldin, 2014 SCC 7, 366 D.L.R. (4th) 641, at para. 34.
[26] The court will find that there is no genuine issue requiring a trial when it is able to reach a fair and just determination on the merits. The motions judge should determine if there is a genuine issue requiring a trial based only on the evidence before her, without using the fact-finding powers in Rule 20.04(2.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194: Hyrniak, at paras. 49 and 66.
[27] The standard for a “fair and just determination” is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute. The evidence need need not be equivalent to that at trial but must be such that the judge is confident that she can fairly resolve the dispute: Hyrniak, at paras. 50 and 57.
[28] On a summary judgment motion, the court is entitled to assume that the parties have advanced their best case and that the record contains all of the evidence the parties would present at trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, [2014] O.J. No. 851, at para. 33.
[29] While summary judgment can operate as a timely, fair, and cost-effective means of adjudicating a civil dispute, it has its limits. Not all civil disputes are amenable to a final adjudication on the merits by summary judgment. In certain cases, adjudication exclusively on a written record poses a risk of substantive unfairness. Great care must be taken to “ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters, in a way that would not likely occur in a full trial”: Baywood Homes Partnerships v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, at para. 44; see also Cook v. Joyce, 2017 ONCA 49, 275 A.C.W.S. (3d) 399, at para. 91.
Summary Judgment Analysis
[30] In my opinion, I am able to decide this matter on a summary judgment motion.
[31] The plaintiffs argue that in order for Sherman’s actions to give rise to an ad hoc fiduciary duty, there must have been an Undertaking that resulted from a Commitment to Royal Trust. I find that Sherman did not make such a Commitment. There was, accordingly, no Undertaking, and Sherman owes no ad hoc fiduciary duty to the plaintiffs.
[32] The plaintiffs argue that certain correspondence from Sherman created a Commitment to Royal Trust. I fail to see how any of it did. The letter written in November 25, 1965 was merely an offer to Royal Trust that was rejected. Without acceptance of the offer, there could be no legal Commitment from Sherman. The other correspondence, written around the time of the sale of the Empire Companies to S & U, was nothing more than a reiteration of Sherman’s position vis-à-vis the children as set out at paragraph 14.00 of the purchase agreement and again in the option agreement, which merely mirrored the wording in the purchase agreement.
[33] The correspondence cannot be elevated into something more. Sherman and S & U had set out in writing exactly what they were prepared to do for the children following the sale of the Empire Companies.
[34] I agree with Justice Perell’s analysis, as confirmed by the Court of Appeal, that:
• There was never an entitlement to an option agreement (paragraph 119);
• Royal Trust attempted to have Sherman offer more but he refused to budge (paragraph 121);
• Sherman was under no obligation to offer employment opportunities to the children (paragraph 122);
• Sherman was only prepared to offer a limited, qualified, contingent and conditional employment contract and option agreement (paragraph 123);
• Sherman was asked to be more generous but would not budge (paragraph 123);
• The option agreement expressed precisely what had been agreed upon by the parties (paragraph 123);
• The children were acquiring a right for which they had no legal entitlement (paragraph 125).
[35] The evidence, as set out in the original affidavit material that was before Justice Perell, and Sherman’s more recent affidavit, affirmed January 27, 2017, clearly supports this analysis. Kerry Winter’s affidavit, as I read it, does not provide any new evidentiary support for an alleged Commitment, other than his alleged conversation with Mr. O’Brien to the effect that it was Sherman’s promise and verbal assurances to include the children in the business that convinced Royal Trust to sell to S & U. I was not referred to any evidence from Sherman’s more recent cross-examination that supports different conclusions than those reached earlier by Justice Perell, or that is contrary to Sherman’s position on this motion.
[36] I am unable to rely on the evidence from Mr. Winter concerning the alleged conversation with Mr. O’Brien. It is hearsay which cannot be tested by cross-examination, as Mr. O’Brien is dead. Secondly, these discussions allegedly took place in 2008 and therefore could have been put forward on the Royal Trust motion in an affidavit from Mr. O’Brien, or alternatively, on a Rule 39.03 examination. Thirdly, this evidence directly contradicts the purchase and sale agreement agreed to by Royal Trust. Fourthly, the purchase and sale agreement contains an entire agreement clause which specifically provides that there were no “verbal statements, representations, warranties, undertaking or agreements between the parties.” Fifthly, it ignores the fact that Sherman’s offer was $100,000 more than the only other offer. And finally, it ignores Justice Perell’s finding, at paragraph 110 of his reasons, that Mr. O’Brien told Mr. Ward that “[i]t appears that we have fully canvassed the market and our chances of selling the companies at a higher price than offered by Barry Sherman would be minimal.” This was the rationale for the sale, not the one now put forward by the plaintiffs.
[37] Even if it could be found that there was a Commitment to Royal Trust that created an Undertaking, I am unable to conclude that Sherman owed the plaintiffs an ad hoc fiduciary duty.
[38] Six factors must exist to create an ad hoc fiduciary duty: Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, [2011] 2 S.C.R. 261, at paras. 27 and 36. The following six factors must exist:
(1) the fiduciary has scope for the exercise of some discretion or power;
(2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or substantial practical interests;
(3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power;
(4) an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries;
(5) a defined person or class of persons vulnerable to a fiduciary’s control (the beneficiary or beneficiaries); and
(6) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.
[39] The plaintiffs argue that they were vulnerable. However, vulnerability alone is insufficient to create a fiduciary duty: Elder, at para. 28. Even if there is vulnerability the relevant consideration is the extent to which it arises from the relationship between the fiduciary and the beneficiary. Here, the plaintiffs were not vulnerable because of anything Sherman had done. Rather, they were vulnerable because of the unfortunate deaths of their parents and because they were young. The fiduciary relationship that existed was between the plaintiffs and Royal Trust as executor of their parents’ estates.
[40] It was up to Royal Trust to look after the plaintiffs’ interests, not Sherman. It is clear from the correspondence, Sherman’s evidence, the purchase agreement itself, and the findings made by Justice Perell that there was only so much that Sherman was prepared to do for the plaintiffs if he was to become the buyer of the Empire Companies. Royal Trust knew that. At the end of the day, Sherman was looking after his own interests – not those of the plaintiffs. His obligations to the plaintiffs were clearly set out in the purchase agreement and eventual option agreement. The obligations, such as they were in the contracts, cannot create a fiduciary duty. There was never a point where Sherman relinquished his own self-interest and agreed to act solely on behalf of the plaintiffs: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at para. 33. To the contrary, Sherman’s self-interest was always clear. That self-interest was made known to Royal Trust and found its way into the contracts for the purchase of the Empire Companies.
[41] The plaintiffs argue that Sherman had an obligation under the option agreement to advise them that he was selling shares under the option agreement, and that if he had done so, they might have been able to do something to protect themselves. They argue that his failure to do so was a breach of his ad hoc fiduciary duty. Having found there to be no ad hoc fiduciary duty this cannot be a breach. In any event, there is no evidence as to what the plaintiffs could or would have done to prevent the sale. They have an obligation to put their best foot forward on a summary judgment motion, and it is not enough to simply argue that they might have done something without providing evidence as to what they might have done.
[42] The plaintiffs’ argument that there had to be a fiduciary duty because the option was so limited, is, to me, nonsensical. A trial is unnecessary to determine this. Again, the argument presupposes that there was a Commitment to be enforced either by a contract or by a fiduciary duty. Further, the limited, qualified, contingent and conditional nature of an option does not create a fiduciary duty where the requirements for an ad hoc fiduciary duty as set out in Elder are not met.
[43] The oppression claim under the OBCA flows from the existence of a Commitment, Undertaking and an attendant fiduciary duty. The plaintiffs claim that they were “beneficial” shareholders of S & U and are “beneficial” shareholders of Apotex because of the Commitment and Undertaking. As I have found that there was no Commitment, this claim must also fail.
[44] Moreover, it has already been found by Justice Perell and confirmed by the Court of Appeal that the “purchased business” under the option agreement does not extend to any generic drug manufacturer and seller owned by Sherman, or in other words, to Apotex. Accordingly, there can be no stand-alone oppression remedy claim.
Abuse of Process
[45] The doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way that would bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirements of issue estoppel. One circumstance in which abuse of process has been found is where the litigation before the court is, in essence, an attempt to re-litigate a claim which the court has already examined: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 37.
[46] The doctrine of abuse of process, unlike res judicata or issue estoppel, does not require mutuality of parties. The doctrine reflects the inherent power of a judge to prevent an abuse of his or her court’s authority. In assessing whether an abuse of process has been established, it is typically necessary to consider all of the relevant context and background: Bear v. Merck Frosst Canada & Co., 2011 SKCA 152, 345 D.L.R. (4th) 152, at paras. 36 and 41.
[47] Having considered all the relevant circumstances, I conclude that this claim is an abuse of process and ought therefore to be dismissed.
[48] At the crux of the claim against Sherman, as it stood when the Royal Trust motion was determined, was the interpretation of the option agreement and the plaintiffs’ allegation that Apotex was the same business as the Empire Companies, entitling each of them to 5% of its shares.
[49] In the Royal Trust claim, Justice Perell and the Court of Appeal interpreted the option agreement and the definition of “purchased business” against the plaintiffs. With the courts already having found against the plaintiffs, concerning the extent of the option agreement and whether Apotex came within the definition of “purchased business” it is no wonder that this action stalled. The claims within it were no longer tenable.
[50] The plaintiffs, now alleging a Commitment and Undertaking from Sherman, cannot avoid the fact that the whole evidentiary underpinning of this action is the same as that of the Royal Trust action. There is nothing new other than the alleged conversation between Kerry Winter and Mr. O’Brien - which, for a variety of reasons, I have found to be inadmissible. In addition, this evidence and theory could have been presented and argued before Justice Perell. I find that it would be unfair and an abuse of process to allow the plaintiffs to, in effect, relitigate their case, with a new theory, to see if this one will succeed where previous theories have failed. Litigation by instalment is not allowed: Pennyfeather v. Timminco Limited, 2016 ONSC 3124, 266 A.C.W.S. (3d) 726, at para. 71. I am mindful of the fact that the defendants are different, but the Commitment and Undertaking could and should have been raised earlier. Mr. O’Brien was one of the trustees of the family trusts. He was a member of the Royal Trust Management Committee. He was involved in the sale of the Empire Companies. Surely if Royal Trust was not relying upon the option as part of the sale, but upon other things that formed the Commitment, this was relevant to the issue of whether Royal Trust was negligent, as the plaintiffs alleged before Justice Perell.
[51] It is an abuse of process, in the circumstances of this case, to come to the court asking to proceed, even if against different parties, where the relief and issues arise from the same relationships and subject matter that have already been dealt with by Justice Perell and the Court of Appeal. In argument, the plaintiffs contend that the decisions and findings made in the Royal Trust proceeding assist them in this action, and that accordingly this action cannot be an abuse of process. I fail to see how this can be so.
[52] The argument that there was a Commitment from Sherman flies in the face of the arguments made before Justice Perell as set out in paragraphs 114, 115 and 116 of his decision and the findings made at paragraphs 118, 119 and 121 thereof.
[53] The option agreement was limited, qualified, contingent and conditional. The claimed interest in Apotex was wishful thinking, and beyond fanciful. Nothing can now change these findings of fact.
Costs
[54] The defendants are presumptively entitled to costs. If the parties are unable to agree upon the issue of costs, the defendants are to provide submissions consisting of no more than two typed double-spaced pages along with a bill of costs, any offers, and appropriate case law to my attention to the Judges’ Administration office, Room 170, 361 University Avenue, on or before September 29, 2017. The plaintiffs are to provide their submissions subject to the same directions on or before October 16, 2017. There are to be no reply submissions.
HOOD J.
Released: September 15, 2017
CITATION: Winter v. Sherman, 2017 ONSC 5492
COURT FILE NOS.: CV-07-326360PD3
DATE: 20170915
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KERRY J.D. WINTER, PAUL T. BARKIN and JULIA WINTER, personal representative of DANA C. WINTER, deceased and JEFFREY A. BARKIN
Plaintiff
– and –
BERNARD C. SHERMAN, MEYER F. FLORENCE, APOTEX INC. and JOEL D. ULSTER
Defendants
REASONS FOR DECISION
HOOD J.
Released: September 15, 2017