Cams Atlas, LLC v. Stang, 2017 ONSC 6553
CITATION: Cams Atlas, LLC v. Stang, 2017 ONSC 6553
COURT FILE NO.: CV-16-561580
DATE: 20171101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CAMS ATLAS, LLC
Plaintiff
– and –
DARREL STANG, in his capacity as trustee of ALIGNED VENTURES INNOVATIVE FUND, GORDON D. PUTNAM, Q.C. in his capacity as trustee of ALIGNED ENTURES INNOVATIVE FUND, PETER PURDON, in his capacity as Trustee of ALIGNED VENTURES INNOVATIVE FUND, WATER EXCHANGE, INC., TECH SONIC INTERNATIONAL (f/k/a, TECH SONIC INTERNATIONAL LTD. and/or TECH SONIC, TECH SONIC SERVICES L.P.) TECH SONIC LIMITED PARTNERSHIP, SHAWN SMITH and ROBERT ORR
Defendants
AND BETWEEN:
WATER EXCHANGE, INC. and TECH SONIC INTERNATIONAL, INC.
Plaintiffs by Counterclaim
– and –
CAMS ATLAS, LLC
Defendant by Counterclaim
HEARD: October 17, 2017
Eliot Kolers and Vlad Calina, for the Plaintiff and Defendant by Counterclaim
Sean Foran and Lia Boritz, for the Defendants and Plaintiffs by Counterclaim
E.M. Morgan, J.
REASONS FOR JUDGMENT
[1] This summary judgment motion is brought by the Plaintiff and Defendant by Counterclaim, Cams Atlas, LLC (“Cams”), seeking to dismiss the Counterclaim on the grounds that it is an abuse of process.
[2] In short, it is Cams’ contention that the claim initiated by the Defendants and Plaintiffs by Counterclaim, Water Exchange, Inc. (“Water”) and its affiliated company, Tech Sonic International, Inc. (“Tech”), is the same as a counterclaim brought against Cams by Water in the Supreme Court of New York. Cams obtained judgment in the amount of $792,000 plus interest in a claim it brought against Water in New York, and at the same time the New York court dismissed Water’s counterclaim against Cams. The New York litigation was at first defended by Water, but ultimately Water abandoned its defense and counterclaim in New York and the judgment was obtained by Cams on an undefended basis. The judgment of the New York court was recognized by this Court in a judgment of Ferguson J. issued on September 19, 2017, and is now enforceable in the same manner as an Ontario judgment.
[3] Counsel for Water and Tech are not defending the Counterclaim brought by Water. They concede that Water’s Counterclaim is res judicata given the judgment of the New York court and the recognition of that judgment in Ontario. However, they argue that the Counterclaim brought by Tech is a separate and distinct matter. They point out that Tech was not a party to the New York proceedings and argue that no cause of action estoppel or issue estoppel applies as between Cams and Tech with respect to the New York judgment. They state that Water and Tech do business with each other, but are separate corporate entities with separate sets of legal rights and obligations. They submit that the evidence in the record does not support piercing the corporate veil or otherwise merging the position of Tech with that of Water, and that therefore the Counterclaim by Tech should be allowed to be determined on its own merits.
[4] Counsel for Cams submit that the entire Counterclaim is essentially a repetition of the allegations that Water made in its now dismissed New York counterclaim. They argue that Tech’s Counterclaim is pleaded as arising out of the same material facts and transactions as the New York counterclaim by Water, and that it is predicated on the same legal theory – i.e. that it was Cams, not Water, who breached a Purchase and Sale Agreement between them dated July 30, 2015 (the “PSA”). Accordingly, they contend that the entire theory of the Counterclaim is irreconcilable with the legal issues and material facts that were determined in the New York judgment and recognized in Ontario. In their factum they describe the Counterclaim by Tech as a “transparent attempt” and a “camouflaged effort” to re-litigate Water’s failed New York counterclaim. Accordingly, they submit in this motion that the doctrine of abuse of process precludes this attempt at re-litigation.
[5] Both sides concede that the motion by Cams seeks what could generically be described as partial summary judgment. Cams does not move to dismiss Tech’s or any other Defendant’s defense in its action against them, and so the main claim herein will proceed to trial regardless of the outcome of the motion. It is only the Counterclaim that is in issue here.
[6] It bears stating at the outset that the Court of Appeal has advised caution when it comes to granting partial summary judgment. In Corchis v KPMG Peat Marwick Thorne, 2002 CanLII 41811 (ON CA), [2002] OJ No. 1437, at para 3, the Court of Appeal, applying Gold Chance International Ltd. v Daigle & Hancock, [2001] OJ No. 1032 (SCJ), articulated the now well-established policy reasons for this approach:
[P]artial summary judgment ought only to be granted in the clearest of cases where the issue on which judgment is sought is clearly severable from the balance of the case. If this principle is not followed, there is a very real possibility of a trial result that is inconsistent with the result of the summary judgment motion on essentially the same claim.
[7] Counsel for Tech acknowledge that this statement came prior to the strong support for summary judgment more generally that was pronounced by the Supreme Court of Canada in Hryniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87. However, the hesitation with respect to partial summary judgment was not undermined or cast in doubt by the Hryniak ruling. In fact, Karakatsanis J. made a point of re-emphasizing the risks of terminating one aspect of a case while leaving other aspects to move ahead to trial:
Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers [to engage in fact-finding on a Rule 20 motion] may not be in the interest of justice.
Hryniak, at para 60.
[8] The Court of Appeal’s analysis in Baywood Homes v Haditaghi, 2014 ONCA 450 provides an illustration of the concern. In Baywood, the parties disputed the impact of two different documents, a promissory note and a release. The moving party sought summary judgment with respect to one of them but not both. The Court of Appeal characterized the two issues as “part and parcel of the same series of transactions”, Baywood, at para 36, and therefore dismissed the request for partial summary judgment. With one issue proceeding to trial, determining the other at the summary judgment stage risked incompatible findings and did not serve judicial economy.
[9] A similar approach was taken by the Court of Appeal in Canadian Imperial Bank of Commerce v Deloitte & Touche, 2016 ONCA 922, [2016] OJ No 6319. There, two claims were made by the plaintiff – one in negligence and the other in negligent misrepresentation. Summary judgment was again sought under one of the relevant headings but not the other. The Court held that “the Lenders’ claim for reckless misrepresentation and Philip’s claims arise out of the same factual matrix as the Lenders’ negligence claim…[and] the facts found by the motion judge in relation to the Lenders’ negligence claim will likely be at issue in the trial of the Lenders’ claim for reckless misrepresentation and Philip’s claims”: CIBC, at para 37. Under these circumstances, partial summary judgment was found to impart too great a risk of inconsistent findings on duplicated evidence when the matter ultimately proceeded to trial.
[10] Even more recently, in Butera v Chown, Cairns LLP, 2017 ONCA 783, at para 29, the Court of Appeal restated this approach: “The caution expressed pre-Hryniak in Corchis is equally applicable in the post-Hryniak world. In addition to the danger of duplicative or inconsistent findings…partial summary judgment raises further problems that are anathema to the stated objectives in Hryniak.” The Butera judgment makes it clear that the reasons for caution that the courts articulated before Hryniak continue to apply today.
[11] With all of that in mind, counsel for Tech submit that the Counterclaim must be permitted to proceed to trial. They point out that the Counterclaim was not litigated on its merits in New York, and that although that judgment is now binding as against Water there is a chance that an Ontario court will make a different determination with respect to Tech. They point out that in any case Tech will be proceeding with its defense of Cam’s claim, and that issues pleaded in the Counterclaim will have to be addressed by the Court in that context. Counsel for Tech therefore submit that partial summary judgment is inappropriate under the circumstances.
[12] By way of background, in the PSA Cams agreed to purchase from Water two industrial vessels which contained proprietary technology and equipment related to industrial class heavy contaminant removal solutions. The PSA made it clear that Tech was the manufacturer of the vessels for Water and that Tech and Water had a business relationship. Cams alleged that Water was unable to supply the vessels as set out in the PSA, and so terminated the contract. Water contended that it was Cams that was in fault in bringing the PSA to an end, but that controversy has been put to rest by virtue of the New York judgment in favour of Cams.
[13] Water also contended in its New York counterclaim that Cams’ precipitous termination of the PSA interfered with its contractual relations with Tech. Since Water’s New York counterclaim has also been dismissed, and that dismissal has been recognized in Ontario, this claim has also been put to rest. It is res judicata that it was Water, and not Cams, that breached the PSA, and it is likewise res judicata that nothing done by Cams in terminating the PSA interfered with any of Water’s economic or contractual rights.
[14] The Fresh as Amended Statement of Claim in this action was served on January 10, 2017. The Defendants include the individual principals of Water as well as Tech and a number of affiliated companies, investors, etc. In this action, Cams claims damages against all of the Defendants for breach of the PSA as well as breach of the duty of good faith and honest performance, misrepresentation, conspiracy and unjust enrichment. In other words, Cams seeks to take the judgment for breach of contract which it has obtained against Water in New York and expand it to include claims for damages against a number of parties associated with Water arising out of the identical contract and breach.
[15] In my view, it is difficult for Cams to argue against re-visiting issues that had already been raised in Water’s New York counterclaim when Cam’s main claim similarly seeks to re-visit issues already raised in its New York claim against Water. It seems to me that if, as Cams concedes, the issue of whether Tech is liable for Water’s breach or for acting contrary to a contractual duty of good faith, etc. is sufficiently contentious to go to trial, then the issue of whether Cams interfered with Tech’s contractual rights must also be contentious enough to go to trial.
[16] For example, the possibility exists that at trial the court will find that neither Tech nor anyone else associated with Water breached any duty owned to Cams and that it was, in fact, Cams that acted in bad faith, etc. If Tech’s Counterclaim has been dismissed pursuant to a summary judgment motion based on it being identical to the New York finding that Water breached the contract with its attendant duty of good faith, there will effectively be contradictory findings in the summary judgment ruling and the trial ruling. That is precisely the result that the Court of Appeal in Butera indicated that motions courts should seek to avoid.
[17] Cams alleges in its pleading that Tech is a party to the PSA, either impliedly as a guarantor or as the alter ego of Water. In addition, the allegations of misrepresentation brought by Cams against the individual Defendants, Shawn Smith and Robert Orr, are connected with Tech’s supposed failure to manufacture the vessels on time according to the terms of the PSA. Counsel for Tech points out, and I agree, that defending these allegations entails presenting evidence of the same or substantially the same facts and as those raised by Tech’s Counterclaim. Again, since the same facts are in issue in the defense to the main claim as are at issue in the Counterclaim, the possibility exists for contradictory findings if the two are not litigated together in the same trial.
[18] If the same facts are litigated at trial as are determined in the summary judgment motion, nothing is saved and judicial economy is not served by granting summary judgment. In Butera, the Court of Appeal admonished that partial summary judgment has a tendency to increase delay and to increase the cost of litigation – i.e. precisely the opposite of what the Supreme Court of Canada in Hryniak stated that summary judgment is designed to accomplish. While Rule 20 obviously encourages an expedited procedure where there is no genuine issue for trial, it certainly does not encourage a bifurcated procedure where there are genuine issues for trial and those issues will indeed go to trial regardless of what takes place at the summary judgment stage.
[19] In Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 SCR 460, at para 18, the Supreme Court of Canada set out the policy grounds of res judicata as follows:
An issue, once decided, should not generally be re-litigated to the benefit of the losing party and the harassment of the winner. A person should only be vexed once in the same cause. Duplicative litigation, potential inconsistent results, undue costs, and inconclusive proceedings are to be avoided.
[20] These are essentially the same policy grounds that the Supreme Court of Canada has identified as underlying the abuse of process doctrine and that make re-litigation of decided matters the proper subject of a stay of proceedings:
The two policy grounds, namely, that there be an end to litigation and that no one should be twice vexed by the same cause, have been cited as policies in the application of abuse of process by relitigation. Other policy grounds have also been cited, namely, to preserve the courts’ and the litigants’ resources, to uphold the integrity of the legal system in order to avoid inconsistent results, and to protect the principle of finality so crucial to the proper administration of justice.
Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 SCR 77, at para 38.
[21] The Supreme Court’s abuse of process thinking is remarkably similar to the Court of Appeal’s thinking on partial summary judgment – i.e. that the integrity of the litigation system requires procedures that can lead to inconsistent results be avoided. As indicated in Baywood, at para 35, citing Hryniak, at para 60, as motions judge I am “obliged to assess the advisability of a staged summary judgment process in the context of the “‘litigation as a whole.’” Taking the Counterclaim brought by Tech together with the defense raised by Tech, it is evident that if one is separated from the other inconsistent results may ensue. Allowing the two of them to proceed to trial is therefore not an abuse of process; it is the very opposite in that it supports the integrity of the legal system by avoiding the possibility of such inconsistency.
[22] As a final matter, I note that counsel for Cams submit that issue estoppel applies here, as Tech is so closely related to Water that the judgment against Water in New York effectively binds Tech and bars its Counterclaim. They cite McQuillan v Native Inter-Tribal Housing Co-Operative Inc., 1998 CanLII 6408 (ON CA), [1998] OJ No 4361, at para 7 (CA) for the proposition that issue estoppel prohibits “a person from relitigating a question where, the cause of action being different, the same question was decided in a final judicial decision in earlier proceedings between the same parties.” They point to several examples of cases in which issue estoppel was held to be a bar to litigating issues by a second party that had already been determined in a prior proceeding against a related party. This includes instances where the second party was the controlling shareholder of the first, Alvi v Misir (2004), 2004 CanLII 47790 (ON SC), 73 OR (3d) 566, at para 24, and where they are otherwise “intrinsically connected” in a variety of relevant ways: True North Vantage Inc. v Pang, 2016 ONSC 3981, at para 10.
[23] Counsel for Cams submit that the relationship between Water and Tech fits this pattern, as the two companies have the same counsel in the present action and share interlocking directorships and executive officers. Counsel for Tech deny that the relationship is sufficient to make one company essentially indistinguishable from the other, and indicate that they have overlapping but not identical boards. They also submit that while the PSA identifies Tech as an affiliate of Water, it was so clear that Tech was not a party to the PSA that when Cams sued for breach of contract in New York it did not name Tech as a defendant.
[24] I am not certain at this point whether Tech can be considered an alter ego of Water, or whether it is a “privy” of Water’s for the purposes of applying an estoppel to the Counterclaim: see McQuillan, at para 7. I am certain, however, that this will be a live issue in the main claim between Cams and Tech, since Cams has sued Tech for, among other things, breach of the PSA. Cams will predictably argue, and Tech will predictably deny, that Tech and Water were two sides of the same coin when Water signed the PSA with Cams.
[25] I note that in her earlier ruling on security for costs in this matter, my colleague Ferguson J. was not prepared at that preliminary stage to rule on whether the corporate veil should be pierced in this way: Cams Atlas, LLC v Stang, 2017 ONSC 6170, at para 5. Neither am I. There is not a chance but rather a certainty that if I make such a finding based on the limited evidence before me, it will either hamper or be inconsistent with a finding on the same issue made after a full trial.
[26] The motion by Cams seeking to dismiss the Counterclaim by Tech is dismissed. Tech’s Counterclaim may proceed to trial.
[27] The motion by Cams seeking to dismiss the Counterclaim by Water, which was not defended here by Water, is granted. Water’s Counterclaim is dismissed.
[28] Neither set of counsel made submissions respecting costs at the hearing. They were both of the view that costs in this motion were closely wed to costs in the security for costs motion heard by Ferguson J., and they wanted to consider them together once they have my ruling. I now encourage the parties to attempt to resolve all outstanding issues of costs between themselves.
[29] In the event that costs cannot be settled among the parties, counsel may make written submissions. I would ask that the submissions be no longer than 3 pages and that they be emailed to my assistant. Counsel for Tech and Water should send their submissions to me and to counsel for Cams within one week of the date of this judgment, and counsel for Cams should send their responding submissions within one week thereafter.
Released: November 1, 2017 Morgan J.
CITATION: Cams Atlas, LLC v. Stang, 2017 ONSC 6553
COURT FILE NO.: CV-16-561580
DATE: 20171101
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CAMS ATLAS, LLC
Plaintiff
– and –
DARREL STANG, in his capacity as trustee of ALIGNED VENTURES INNOVATIVE FUND, GORDON D. PUTNAM, Q.C. in his capacity as trustee of ALIGNED ENTURES INNOVATIVE FUND, PETER PURDON, in his capacity as Trustee of ALIGNED VENTURES INNOVATIVE FUND, WATER EXCHANGE, INC., TECH SONIC INTERNATIONAL (f/k/a, TECH SONIC INTERNATIONAL LTD. and/or TECH SONIC, TECH SONIC SERVICES L.P.) TECH SONIC LIMITED PARTNERSHIP, SHAWN SMITH and ROBERT ORR
Defendants
AND BETWEEN:
WATER EXCHANGE, INC. and TECH SONIC INTERNATIONAL, INC.
Plaintiffs by Counterclaim
– and –
CAMS ATLAS, LLC
Defendant by Counterclaim
REASONS FOR JUDGMENT
E.M. Morgan, J.
Released: November 1, 2017