Romanelli v. Romanelli, 2017 ONSC 5555
CITATION: Romanelli v. Romanelli, 2017 ONSC 5555
COURT FILE NO.: CV-16-126000-00
DATE: 20170920
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARIO ROMANELLI AND FELICE ROMANELLI, also known as PHIL ROMANELLI
Plaintiffs
– and –
ANTHONY ROMANELLI, also known as TONY ROMANELLI
Defendant
COUNSEL:
Theodore B. Rotenberg, for the Plaintiffs
John A. Adair, for the Defendant
HEARD: May 19, 23, 24, 25, 29, 30, 31, June 1 and July 26, 2017
REASONS FOR DECISION
EDWARDS J.:
Overview
[1] It has often been said that money is the root of all evil. This litigation certainly demonstrates the accuracy of that age-old saying.
[2] Mario, Phil and Tony Romanelli are brothers. Through the hard work of their father, a 100 acre farm was purchased in the Brantford area. Title to the farm was ultimately held by Triple R Ranch Co. Ltd. (“Triple R”), which was incorporated in August 1976. The articles of incorporation for Triple R establish that the purpose of Triple R was to carry on an all-encompassing farming operation.
[3] The brothers were all involved in various aspects of the farming operation, although Phil being the youngest was less involved until he completed his education. Unfortunately, their father passed away in 1983 and never lived to see the true value of the farm, which ultimately materialized when it was sold in 2012 for in excess of $12,000,000. At the time of the sale the three brothers were equal shareholders in Triple R.
[4] One might have expected that the three brothers would have been satisfied with sharing the net proceeds of sale once the various encumbrances attached to Triple R were discharged, including obligations with the Canada Revenue Agency (“CRA”). One of the obligations that was outstanding was a loan made by Triple R to a company known as Tri-Rom Enterprises Inc. (“Tri-Rom”), in the amount of approximately $1,000,000. It was beyond dispute that Tony and Phil were shareholders of Tri-Rom. Mario denied that he was a shareholder and, as such, he disputed he had any obligation with respect to the loan. Ultimately that issue had to be dealt with in a separate action, which resulted in a finding that Mario was a shareholder.
[5] Not satisfied with what many might view as a significant windfall arising out of the sale of a farming property that had been presumably the dream of their father, this litigation was commenced by Mario and Phil against their brother Tony, the essence of which arises out of a construction business that initially involved landscaping but subsequently involved the construction of homes.
[6] This litigation requires the Court to, in many respects, unravel the financial day to day operations of Tri-Rom and determine whether Tony favoured himself over his brothers, or whether – as suggested in the defence of this action, all three brothers were essentially treated equally.
Position of the Plaintiffs, Mario and Phil
[7] Mario and Phil assert that their claim against Tony is made out by the business records of Tri-Rom which were kept by Tri-Rom’s bookkeeper, Cathy Santolini (“Cathy”). Included in the various business records that were entered into evidence at this trial, was evidence relating to shareholder loan accounts that on their face establishes that Tony owes Tri-Rom approximately $227,000; that Tri-Rom owes Phil approximately $179,000; and that Tri-Rom owes Mario approximately $74,000. Counsel for the Plaintiffs assert that the business records introduced as evidence, through Cathy, were not only accurate but also reliable, thus establishing Tony’s liability to his brothers.
[8] In addition to asserting a claim for the amounts owing, as reflected in the shareholders accounts, the Plaintiffs also claim for what in essence is an equalization of salaries paid between 2004 and 2010. Based on the figures asserted, it is argued that Tony owes Phil $6,300 and that he owes Mario $57,386.71.
[9] Between 2002 and 2010, the Plaintiffs allege that Tony overcharged gas expenses on Tri-Rom credit cards that were used either for his own personal purposes or for purposes involving his wife (“Sheila”) and her children. In this regard, the Plaintiffs claim $47,000 in gas charges improperly charged by Tony.
[10] The Plaintiffs also claim against Tony with respect to claims arising out of rebuilding Sheila’s home, as well as the construction of a new home for Sheila. Mario specifically claims that he was never paid for costs incurred in rebuilding Sheila’s home in the amount of $11,525.45, as well as what is described as a normal profit for Tri-Rom associated with the rebuilding, estimated at $20,000. With respect to the construction of Sheila’s new home, it is argued that Tony should repay Tri-Rom for a loss of approximately $23,000 associated with that transaction, as well as a loss in profit estimated at “no less than $150,000”.
[11] Once the relationship amongst the brothers had deteriorated to the point where they no longer were in business together, various pieces of equipment owned by Tri-Rom were placed in storage, for which storage costs are being claimed by Mario in the amount of $67,000 and by Phil in the amount of approximately $69,000. There is also a claim brought by the Plaintiffs arising out of what is alleged to have been an improper use of the name Tri-Rom Homes by Tony, for which the Plaintiffs assert a claim for loss of goodwill in the amount of $120,000.
Position of the Defendant, Tony
[12] Mr. Adair argues on behalf of Tony that the arrangement amongst the three brothers was that everything associated with the Tri-Rom business would be shared on a roughly equal basis. While there may not have been actual equality in the sense that for each dollar earned each of the brothers would receive equal compensation, the evidence it is argued, establishes that each brother had equal access to the company’s revenue and credit cards. It is therefore argued that all three brothers shared those benefits in what is described as “rough equality”. In essence, it is argued that each of the brothers received the same salary and had the same access to corporate funds to pay personal expenses. They all drove expensive vehicles, all of which were paid by the company.
[13] As for the shareholder loan accounts, while it is conceded that the amounts reflected in the shareholder loan accounts were accurately recorded by Cathy, it is argued that the information relied upon by Cathy to input amounts into the various shareholders account was not reliable and, as such, the Court can have no confidence that Tony owes Tri-Rom something in the order of $227,000. In support of that argument, Mr. Adair refers to Cathy’s evidence where she makes clear she had no confidence whatsoever that the shareholder loan account ledgers were an accurate reflection of the distribution of corporate funds amongst the brothers. While Mr. Adair acknowledges that the shareholder loan account ledgers were properly introduced under the statutory business records exception to the hearsay rule found in s. 35 of the Ontario Evidence Act, he argues that the business records exception only provides for the admissibility of the business records. Mr. Adair argues that the business records were not admitted to prove the truth of their contents. As such, it is argued that this Court is required to weigh the reliability of the evidence reflected in the shareholder loan accounts and decide whether Tony owes Tri-Rom $227,000.
[14] As for the claim asserted by the Plaintiffs for an equalization of their salaries between 2004 and 2010, Mr. Adair argues – amongst other things, that this claim was abandoned at the time of Mario’s examination for discovery. With respect to what is described as the overcharging in relation to Tony’s gasoline expenses, Mr. Adair points to Phil’s evidence where he accepted that some of the gas charges made on the Imperial Oil credit card were business related. As such, it is argued this Court can have no confidence that the full amount claimed by the Plaintiffs was personal and not business related. As for the amounts claimed with respect to the rebuilding of Sheila’s first home, Mr. Adair argues that this claim was not pleaded nor have any records been produced to support the claim. Because it was never pleaded there was no discovery, and as such no questions on this claim were put to Mario or Phil on their discovery. Mario testified that he was not aware of any benefit being conferred upon Sheila by Tri-Rom with respect to the rebuilding of her home. With respect to the construction of Sheila’s new home, Mr. Adair also notes that this claim was never pleaded, nor was it subject to discovery. As for the claim for loss of profit, Mr. Adair notes this was never proven and is entirely speculative.
[15] Dealing with the storage charges asserted by Mario and Phil in the total amount of approximately $140,000, Mr. Adair argues that this claim is pleaded as a set-off defence to Tony’s claim against Phil’s use of the Tri-Rom equipment after 2010. A similar argument is made with respect to the claim for loss of goodwill with respect to Tony’s use of the Tri-Rom name.
Analysis
[16] Cathy was called as a witness by the Plaintiffs. Her witness statement was prepared by Mr. Rotenberg. Everything about how her evidence unfolded, until she was cross-examined and contradicted by Mario and Phil in their evidence in-chief, would lead anyone to the conclusion that all three brothers had confidence in Cathy as Tri-Rom’s bookkeeper. I was impressed with Cathy as a witness, who if anything was reluctant to take sides in this litigation. In my view she did not favour one side over the other but, rather, endeavoured to provide her evidence in an honest and credible fashion. Mr. Rotenberg did seek to have Cathy declared a hostile witness. That motion was refused.
[17] Cathy was Tri-Rom’s bookkeeper from approximately 1997 until 2010. Her evidence establishes that she was friendly with all three of the Romanelli brothers. It is hard to accept the suggestion, implicit in Mr. Rotenberg’s motion to have Cathy declared hostile, that the Court should have no confidence in any of her evidence that might be found favourable to Tony. In that regard, I take note of the fact that Mario and Phil must have found Cathy to be someone in whom they could place their trust given that even after the breakdown of their relationship with Tony, Cathy continued to do Phil’s bookkeeping and also swore two affidavits in the 2013 litigation relating to the ownership of Tri-Rom.
[18] To suggest as Mario did during the course of his evidence that Cathy was emotional and under Tony’s control, including what she said or did is, in my view, a submission that runs contrary to common sense. If in fact, as Mario suggested, Cathy was someone who was under Tony’s control, one would have to seriously question why Mario and Phil would call Cathy as their own witness. The two affidavits prepared in connection with the 2013 litigation were prepared by Mr. Rotenberg. Cathy’s witness statement in this litigation was also prepared by Mr. Rotenberg. If Mario and/or Phil had concerns with respect to Cathy, one might rhetorically ask why there is no reflection of such control in any of the affidavit evidence or witness statements prepared by Mr. Rotenberg. I reject, in its entirety, any suggestion that this Court should not have confidence in Cathy’s evidence. I accept Cathy’s evidence that she did not have any confidence that the shareholder loan accounts accurately reflected who got what benefit as between the brothers. As such, I cannot accept the shareholder loan account as reliably reflecting amounts owed by Tony to Tri-Rom, or conversely, amounts Tri-Rom owes to Mario and Phil.
[19] While I do not have any confidence, based on Cathy’s own evidence with respect to the reliability of the shareholder loan accounts, I have come to the conclusion based on all of the evidence, that while the agreement between the brothers – to the extent that there was any agreement, reflected an understanding that they were equal partners in Tri-Rom, that it is more probable than not that Tony may have materially benefitted more than his brothers in terms of expenses that he placed through Tri-Rom. I accept Tony’s evidence that there were, in all likelihood, many occasions when various records that he provided to Cathy for expenses that he had incurred reflected expenses incurred on behalf of all or some of the brothers. To that extent if Cathy relied on an invoice and charged it to Tony, but in fact the invoice reflected expenses (such as a meal) incurred on behalf of two or three of the brothers, that the inputting of that expense into Tony’s shareholder account would not be an accurate reflection of his state of indebtedness to the company.
[20] I am left with a reasonable doubt with respect to whether, in fact, Mario and Tony were unfairly treated with respect to their shareholder accounts. To that extent I rely on the evidence of their mother, who testified that Tony always seemed to have money while the others did not. Because I am left in doubt with respect to the reliability of the shareholder loan accounts, and in particular a doubt as to whether or not Tony may have consciously or unconsciously favoured himself over his brothers in terms of personal expenses put through the company, I am left with little alternative other than to require that an accounting take place with respect to the shareholder loan accounts and what amounts are properly chargeable to Tony and what amounts are properly chargeable to Mario and Phil. As for the cost of that accounting, I am ordering that the up-front costs to be incurred with an accounting firm shall be split equally amongst the three brothers. As for the ultimate allocation of the accounting costs, that may be reserved for further argument. The selection of the accounting firm shall be mutually agreed to between the parties. If the parties cannot agree on who is to do the accounting, the parties are to provide the Court with two names and the Court will appoint the accounting firm.
Tony’s Gasoline Expenses
[21] Mario and Phil assert that Tony incurred $47,000 in gas charges that were personal in nature, for which he must reimburse Tri-Rom. I accept Tony’s evidence as it relates to the use of Tri-Rom’s gas credit cards, that these credit cards were used for both personal and business purposes by all three brothers. I do not accept Mario’s evidence that Tony’s personal use of the gas cards amounted to approximately $47,000. As with the shareholder loan accounts, however, I am still left with a reasonable doubt as to whether in fact Tony did incur more personal gas charges than his other two brothers and, as such, as with the shareholder loan accounts I am ordering that an accounting take place with respect to the use of the Tri-Rom gas credit cards from 2002 through 2010.
Equalization of Salaries
[22] At the time of Mario’s examination for discovery the following exchange took place between Mr. Adair and Mr. Rotenberg, at page 45:
Mr. Adair: I don’t mind if you answer this. I take it you’re not claiming for an equalization of salaries.
Mr. Rotenberg: Correct. The reason for that is the simple math…
Mr. Adair: I understand, and apologize for being overly lawyerly about this, but the important part, just so I understand it, is that the Plaintiffs’ position is the salaries were to have been equalized, regardless of the reasons it’s not being pursued?
Mr. Rotenberg: Correct.
[23] In my view, Mr. Rotenberg was in a position to bind his clients when he made the aforesaid statements on Mario’s examination for discovery. In my view, the Plaintiffs are therefore estopped now from asserting a claim for equalization of salaries. To allow the Plaintiffs to pursue such a claim, in my view would be to prejudice Tony in a situation where further discovery on that issue does not appear to have been pursued by Mr. Adair.
[24] As for the claims made by the Plaintiffs for the rebuilding of Sheila’s first home and the construction of Sheila’s new home, these claims relate to time periods that date from 1998 to 1999 and 2002 and 2004 respectively. In my view, both of these claims are barred by the provisions of the Limitations Act. If I am wrong in that regard, as it relates to the loss of profit in connection with the rebuilding of Sheila’s first home, the claim in that regard – in my view, is nothing more than speculation and was unproven at trial. Similarly, with respect to the loss of profit in connection with Sheila’s new home, that amount is an estimation of a loss that was not proven at trial and is entirely speculative. I also note that the claim in connection with the construction of Sheila’s new home was not pleaded in the Plaintiffs’ statement of claim, and as such Tony would have been prejudiced by reason of his inability to examine the Plaintiffs for discovery as to that aspect of their loss. These claims are therefore dismissed.
The Storage Related Charges
[25] The Plaintiffs claim for the cost of the storage of Tri-Rom equipment from November 2010. None of those costs were ever agreed to by Tony. Mr. Adair asserts that these claims made by Mario and Phil were asserted as a set-off defence to Tony’s claim against Phil in relation to the Tri-Rom equipment after 2010. While I agree with Mr. Adair’s characterization, it would still have been open to Mario and Phil to have sought an amendment at trial to assert a claim with respect to those storage charges. In my view, if such a claim had been properly pleaded, the Court would have still had to deal with the question of whether it was a legitimate claim. In my view, if Mario and Phil intended to assert a claim with respect to those storage costs, it was incumbent upon them to have advised Tony at an early stage in the storage of the equipment that they intended to seek payment for the storage costs as against Tony. In my view, the claim that is now asserted is nothing more than a veiled attempt to get back at Tony and is not a legitimate expense to be charged to Tony.
[26] As for the claim asserted by Mario and Phil with respect to the use of the Tri-Rom name by Tony in his new company, the Court received no evidence with respect to the value of the goodwill in the Tri-Rom name. It was incumbent upon Mario and Phil to present evidence to the Court to properly establish the value of the goodwill claimed. In the absence of such evidence this claim is dismissed.
Tony’s Claims Against Mario and Phil
[27] Tony claims as against Mario for $51,720 in payments that Tri-Rom made to Joanne Blanchard, a lady with whom Mario was associated. These monies were paid, according to Cathy’s evidence, on account of money that would have been received from Tri-Rom but for a CRA audit of Mario. Tony also asserts a claim against Mario with respect to his use of the Triple R farmhouse on a rent free basis between 1986 and 2010 which he calculates at the rate of $500 per month, for a total of $90,000.
[28] There are also claims asserted by Tony, as against Mario and Phil, with respect to what Tony characterizes as $170,000 in profit which they received when they purchased two homes from Tri-Rom at cost and ultimately sold them within 24 months. Finally, Tony asserts a claim against Phil on account of the $30,000 value of a Corvette that Tony argues Phil received in lieu of a payment that would have been made to Tri-Rom, on what is described as the Peter Page home. In my view none of these claims made by Tony against his brothers can succeed, for the very same reasons that the pre-2010 claims made by Mario and Phil against Tony cannot succeed. Pure and simple, the Limitations Act applies to any claim made by any brother in relation to items in dispute prior to 2010.
[29] The same does not, however, hold true with respect to two claims made by Tony against Mario. In December of 2011, Mario received approximately $49,000 on account of fire insurance proceeds that belonged to Triple R, which funds even Mario acknowledged in his cross-examination did not belong to him. As such I am ordering that Mario repay to Triple R, by way of set-off against any entitlement that he has to funds from either Triple R or Tri-Rom, the sum of $49,371.17. This item should attract pre-judgment interest, calculated in accordance with the provisions of the Courts of Justice Act as of December 2011.
[30] Mario also received the sum of $36,208.35 in September of 2012, an amount that represented the net proceeds from the sale of a sawmill, proceeds that did not belong to Mario but rather belonged to either of Tri-Rom or Triple R. These funds are to be repaid by Mario, with interest, in the same fashion as the fire insurance proceeds.
[31] I believe I have addressed all of the various claims that the brothers assert against each other. In the event there are claims I have neglected to deal with counsel may arrange a time to meet with me to address any concerns they have arising out of these Reasons. I would strongly encourage counsel and their clients to resolve any issues regarding costs. If the issue of costs cannot be resolved I will receive written submissions limited to five pages, to be received no later than 30 days after the release of these Reasons.
[32] As a parting aside to these Reasons, it is not lost on me that the orders that I have made directing an accounting will result in significant further expense to the parties and delay a final severing of the “Gordian knot” in this troubled family dispute. It is never too late for common sense to prevail. The parties have two very good lawyers. They might want to consider listening to the practical and learned advice from counsel and come up with a resolution that does not require the agony and expense of an accounting. They might also want to reflect on what their father would have done in these circumstances.
Justice M.L. Edwards
Released: September 20, 2017
CITATION: Romanelli v. Romanelli, 2017 ONSC 5555
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MARIO ROMANELLI AND FELICE ROMANELLI, also known as PHIL ROMANELLI
Plaintiffs
– and –
ANTHONY ROMANELLI, also known as TONY ROMANELLI
Defendant
REASONS FOR DECISION
Justice M.L. Edwards
Released: September 20, 2017