CITATION: Liquid Capital Exchange Corp. v. Blackcherry Digital Media Inc., 2017 ONSC 6909
COURT FILE NO.: 535/16
DATE: 20171121
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Liquid Capital Exchange Corp.
Plaintiff
– and –
Blackcherry Digital Media Inc. and John Mark Seck
Defendants
Benjamin Frydenberg, for the Plaintiff
Self-represented
– and –
Vanora Schoenwald
Self-represented
Third Party
HEARD: November 2, 2017
REASONS FOR JUDGMENT
Woollcombe J.
[1] This matter came before me for the penalty phase of a contempt motion in relation to John Mark Seck and Vanora Schoenwald.
The Relevant History
[2] Before addressing the appropriate disposition, I shall set out the relevant history.
[3] Liquid Capital is a purchaser and funder of accounts receivable and purchase orders. Blackcherry Digital Media Inc. (“Blackcherry”) operated as an independent game studio and digital content company. John Mark Seck (“Mr. Seck”) is the president and major shareholder of Blackcherry. He is married to Vanora Schoenwald (“Ms. Schoenwald”).
[4] On May 27, 2013, Blackcherry and Liquid Capital entered into an agreement under which Liquid Capital provided funding to Blackcherry, allowing it to draw funds as against certain tax credits that Blackcherry was eligible for over the years 2010 to 2012.
[5] As security for its indebtedness, Blackcherry executed a General Security Agreement dated May 27, 2013. Under this Agreement, Blackcherry assigned all of its right, title and interest to the tax credits to Liquid Capital. Mr. Seck personally guaranteed the payment of Blackcherry’s obligations to Liquid Capital.
[6] The tax credits were not paid to Liquid Capital. It learned that the tax credits were collected and paid directly to Blackcherry.
[7] By letter of January 25, 2016, Liquid Capital exercised its right by demanding that Blackcherry repurchase the tax credits and declaring that the entire amount due to Liquid Capital under the Agreement be due and payable.
[8] Liquid Capital also served Notice of Intention to enforce security and demanded payment of the indebtedness by February 17, 2016. The indebtedness as of January 15, 2016 was $179,340.
[9] On February 18, 2016, Liquid Capital commenced action against Blackcherry and Mr. Seck. Default judgment was obtained on March 24, 2016.
[10] Liquid Capital attempted to garnish Blackcherry’s bank accounts but no funds were recovered. It also attempted to recover the tax credits through the Canada Revenue Agency (“CRA”). CRA took the position that Liquid Capital’s security was not effective against it.
[11] On August 29, 2016, Liquid Capital appointed a receiver, John Morgan, for the purpose of collecting the tax credits.
[12] Mr. Morgan and Liquid Capital representative Jonathon Brindley met with Mr. Seck and his spouse Ms. Schoenwald at their home on September 29, 2016. They learned that Blackcherry had received the tax credits from CRA, that Mr. Seck had used the money to pay down other debts, that Blackcherry was no longer operational and that Blackcherry was eligible to receive a further tax credit of about $100,000 relating to a “One Million Monkeys” game.
[13] On October 12, 2016, Mr. Morgan wrote to Ms. Schoenwald and told her that the receiver wished to file a claim for the tax credit relating to the game. He asked that Mr. Seck cooperate in assisting the receiver in filing his claim and that Ms. Schoenwald advise of the location of Blackcherry’s records.
[14] On October 12, 2016, Ms. Schoenwald sent an email response saying that she would try to figure out where the records were. She indicated that she was not sure which records were sought and that it might be easier if she was told what specifically was needed.
[15] The receiver responded, saying that he needed the bank statements and source documents and the general ledger with the company’s accounting records summarized. He never received further information from Ms. Schoenwald or Mr. Seck.
[16] On December 13, 2016, Mr. Seck was served with a Notice of Examination in aid of execution against both him and Blackcherry, returnable on January 10, 2017. He failed to attend and certificates of Non-attendance were issued.
[17] Liquid Capital brought a motion returnable March 8, 2017 before Gibson J. In the motion, Liquid Capital sought to compel Mr. Seck to attend for examination in aid of execution in both his personal capacity and on behalf of the company. Liquid Capital also sought an order for production of documents listed in the Notice of Examination and documents related to the tax credits. Mr. Seck did not attend at that motion or file responding materials.
[18] Gibson J. ordered that the defendant Blackcherry and Mr. Seck were to produce within two weeks all documents listed in the Notice of Examination, and documents related to the tax credits.
[19] On March 18, 2017, the Gibson J. Order was served on Mr Seck personally, and on behalf of Blackcherry, along with a cover letter. In that letter, counsel for Liquid Capital indicated that if the documents were not received in two weeks, a motion would be brought to have the defendants cited in contempt.
[20] The defendants did not comply with the March 9, 2017 Order of Gibson J.
[21] Liquid Capital brought a motion for contempt, returnable on May 25, 2017. This motion was heard by Coats J. Although the defendants were personally served with the motion materials and paged into the courtroom, neither Mr. Seck nor counsel for Blackcherry attended at court.
[22] Coats J. found the defendants in contempt of the Gibson J. Order. She provided that the defendants had two weeks to purge their contempt by complying with her Order that they produce various business documents to facilitate Liquid Capital’s efforts to recover upon its loan security. The penalty phase of the contempt hearing was adjourned to June 21, 2017.
[23] On May 26, 2017, the Coats J. Order was served on the defendants personally and by registered mail, along with a cover letter.
[24] The deadline for the defendants to purge their contempt was June 8, 2017. There is no evidence of the defendants having taken any steps to comply with the Coats J. Order or to purge their contempt. No contact was made by the defendants with counsel for Liquid Capital.
[25] On June 20, 2017, the day before the penalty phase of the contempt proceeding was scheduled to proceed, counsel for Liquid Capital received an email from Ms. Schoenwald. She advised that the defendants would not be attending at court on June 21, 2017 and said that Mr. Seck had a brain injury and was on disability.
[26] There followed several emails between Ms. Schoenwald and counsel for Liquid Capital, Mr. Frydenberg, on June 20, 2017. Mr. Frydenberg set out the chronology of what had taken place, from his perspective, and highlighted for Ms. Schoenwald that he had received no evidence of any medical condition related to Mr. Seck.
[27] Among other things, Ms. Schoenwald said that the corporate records were being held in a storage shed that was double locked and which she could not access because they could not afford to do so. She said that this information had been provided to the Receiver.
[28] On June 21, 2017, Mr. Frydenberg appeared before Miller J. for the penalty phase of the contempt motion. Fifteen minutes before court began, Mr. Frydenberg received a fax with bankruptcy documents for Mr. Seck, who had made an assignment of bankruptcy earlier that morning. In those documents, Mr. Seck personally executed his Statement of Affairs, provided a detailed inventory of his personal assets and liabilities, and swore under oath that his Statement of Affairs was a full, true and accurate statement of his affairs as of June 20, 2017.
[29] The defendants did not attend at court before Miller J..
[30] Mr. Frydenberg provided to Justice Miller some of the emails from Ms. Schoenwald. He also advised Miller J. that he had just learned of the bankruptcy of Mr. Seck, but that he did not think that the bankruptcy stayed the civil contempt proceeding. He suggested that it made the most sense for the matter to be adjourned on terms.
[31] Miller J. adjourned the matter to July 20, 2017, peremptory on the defendants. She also granted to Liquid Capital leave to amend its notice of motion and to file additional material in respect of ancillary relief from Ms. Schoenwald.
[32] On July 20, 2017, the penalty phase of the contempt motion was before Fitzpatrick J. Both Mr. Seck and Ms. Schoenwald attended. Ms. Schoenwald was ordered to assist, to the best of her ability, to facilitate compliance by Mr. Seck and Blackcherry with the Gibson J. Order of March 9, 2017 and the Coats J. Order of May 25, 2017. Fitzpatrick J. ordered that counsel for the Liquid Capital communicate with Ms. Schoenwald respecting what it was seeking. Ms. Schoenwald was ordered to attend for an examination in aid of execution in Ottawa (where she resides).
[33] Fitzpatrick J. adjourned the penalty phase of the contempt hearing in relation to Mr. Seck to October 12, 2017 to allow for the purging of the contempt. The motion was marked as peremptory against the defendants, with Fitzpatrick J. saying that this meant that it would proceed that day regardless of whether Mr. Seck and Ms. Schoenwald attended or filed materials.
[34] The next day, on July 21, 2017, Mr. Frydenberg wrote to Ms. Schoenwald. In that letter, he set out in detail precisely what he expected her to do to facilitate compliance with the previous two court Orders.
[35] On July 28, 2017, Mr. Frydenberg sent by email to Ms. Schoenwald a copy of Fitzpatrick J.’s Order. He sent further letters to her on August 2, 8, and September 8, 2017. The letter of September 8, 2017 made clear that unless Ms. Schoenwald complied with the Fitzpatrick J. Order, Mr. Frydenberg would seek to expand the contempt motion to include her. No response was received from Ms. Schoenwald. She produced nothing. As a result, Liquid Capital’s position was that it made no sense for the examination in aid of execution to be scheduled.
[36] The matter was before me on October 12, 2017. Neither Mr. Seck nor Ms. Schoenwald attended at court.
[37] On the basis of the affidavit evidence before me, I found Ms. Schoenwald in contempt of the Order of Fitzpatrick J. of July 20, 2017. I wanted to ensure that she had a period of time to purge her contempt before I proceeded to the penalty phase. As it made sense for the penalty phase of the contempt for both Mr. Seck and Ms. Schoenwald to proceed at the same time, notwithstanding that the matter was peremptory on Mr. Seck that day and he was not present, I adjourned the penalty phase for both of them to November 2, 2017. I made clear that if they chose not to attend court that day, arrest warrants would be issued to bring them to court.
[38] On October 13, 2017, Mr. Frydenberg emailed to Ms. Schoenwald a copy of my endorsement and Order.
The Adjournment Request
[39] On November 2, 2017, the matter was back before me for the penalty phase of the contempt proceeding. Both Mr. Seck and Ms. Schoenwald attended at court.
[40] Ms. Schoenwald advised that a motion has been brought on behalf of the defendants, returnable on November 23, 2017, in which they seek to set aside the default judgment dated March 24, 2016. Ms. Schoenwald says that the defendants have a right to have their motion heard and that the penalty phase of the contempt should be stayed pending the outstanding motion.
[41] I was provided with a copy of the defendants’ notice of motion and supporting affidavit of Ms. Schoenwald. It appears to be the defendants’ position that Mr. Seck experienced a sudden cardiac arrest resulting in a significant brain injury in June 2012. I understand their position is that Mr. Seck is a party under disability and that a party under disability can only be noted in default with leave of a judge, in accordance with rule 7.07(i)). They say that there is a valid defence to the claim in that the agreement was signed by a person under a disability and without the legal capacity to act. Accordingly, the defendants say that the default judgment should be set aside under rule 19.03(i).
[42] Liquid Capital’s position is that I should stay the motion to set aside the default judgment. Relying on the decision in Ontario (Attorney General) v. Paul Magder Furs Ltd., 1991 CanLII 7053 (ON CA), [1991] O.J. No. 2025 (C.A.), it is Mr. Frydenberg’s position that the defendants cannot proceed with their motion on November 23, 2017 as long as they remain in contempt of other court orders.
[43] In addition, Mr. Frydenberg says that Mr. Seck is an undischarged bankruptcy and that as such, he does not have the personal capacity to attack the default judgment that pre-dated his bankruptcy. Rather, Mr. Frydenberg says that such a motion must be brought by the trustee-in-bankruptcy.
[44] Further, Liquid Capital asserts that when the entire premise of the motion to set aside the default judgment is that Mr. Seck is of diminished capacity, he cannot then bring a motion on his own behalf, and requires a litigation guardian.
[45] But, Liquid Capital says that even if there were a litigation guardian for Mr. Seck, that person would not have standing to act on behalf of the corporation and it is not clear who does.
[46] As I indicated at the hearing of the motion, I was not prepared to adjourn the penalty phase of the contempt hearing pending the hearing of the motion to set aside the default judgment.
[47] The Supreme Court of Canada explained in Carey v. Laiken, 2015 SCC 17 at paras. 65-66 that once a finding of contempt has been made at the first stage of a bifurcated contempt proceeding, that finding is “usually final”. While the court did not set out an exhaustive list of circumstances that warrant a judge revisiting an initial contempt finding, it agreed with the Court of Appeal that this would be possible if the contemnor subsequently complied with the order or purged his or her contempt. Neither is the case here. I cannot see how anything that occurs at the defendants’ motion to set aside the default judgment would justify revisiting the findings of contempt against the defendants or Ms. Schoenwald. Accordingly, I declined to grant the adjournment request and proceeded to hear submissions on the appropriate penalty.
The Penalty
a) The Relevant Legal Principles
[48] The purpose of penalty in a civil contempt is to enforce compliance with a court order and to ensure societal respect for the courts.
[49] In Boily v. Carleton Condominium Corp. 145, 2014 ONCA 574, the Court of Appeal set out at para. 90 the factors that are relevant to a determination of an appropriate sentence for civil contempt:
a. the proportionality of the sentence to the wrongdoing;
b. the presence of mitigating factors;
c. the presence of aggravating factors;
d. deterrence and denunciation;
e. the similarity of sentences in like circumstances; and
f. the reasonableness of a fine or incarceration.
b) The Positions of the Parties
[50] Mr. Frydenberg says that there are an arsenal of potential penalties under Rule 60.11(5) and that I should impose a sanction as is just. It is his position that there should be a period of incarceration in order to send a message that the ongoing wilful non-compliance with court orders is not acceptable.
[51] Mr. Frydenberg says that the aggravating factors here include the repeated and wilful failure to comply with court orders on the part of both Mr. Seck and Ms. Schoenwald. He says that the contemnors are motivated by personal greed in that they have failed to account for the tax refund money and have used it for their personal gain and not disclosed where it went. Ms. Schoenwald has acknowledged having attended at Money Mart when the CRA cheque was cashed and yet she refuses to say where the money went. Mr. Frydenberg says that there is a need for both specific and general deterrence. Finally, I am referred to cases in which sentences in the range of two months to four months have been imposed.
[52] It is Mr. Frydenberg’s position that there should be a term of imprisonment of between 30 and 45 days for each of Mr. Seck and Ms. Schoenwald and that consideration should be given to making the sentences intermittent so as to enable Ms. Schoenwald to continue to work.
[53] When asked to make submissions as to disposition, Ms. Schoenwald took the position that she had provided the information that she could about the cheque from CRA and that “I can’t provide what I don’t have”. She also renewed her arguments about the propriety of the default judgment, suggesting that it should be set aside. Finally, she submits that she has a 16-year-old son and that both her son and Mr. Seck need her to look after them.
[54] Mr. Seck did not say much in court. It was very clear to me from his mannerisms and the way in which he speaks that, while there is no medical evidence before me, he has some medical issues as a result of which he is less than capable of representing himself. He appeared to me to have genuine difficulty speaking coherently. He asserted that this was all his fault and that if anyone went to jail, it should be him.
c) The Issue of Mr. Seck’s Brain Injury and Ability to Represent Himself
[55] No evidence was filed with the court on this motion respecting Mr. Seck’s mental capacity or ability to represent himself. But, I was provided with the material that Ms. Schoenwald says will be used at the motion to set aside the default judgment.
[56] This material includes an affidavit sworn by Ms. Schoenwald. She says that Mr. Seck suffered sudden cardiac arrest in June 2012 and was hospitalized. She says that he has been left with a significant brain injury.
[57] Attached to Ms. Schoenwald’s affidavit is a letter of September 28, 2015 from Dr. Taunya St. Pierre. The doctor sets out the effects of Mr. Seck’s brain injury on his memory and disposition. This letter makes clear that Mr. Seck has significant and ongoing capacity issues as a result of his brain injury.
[58] I raised with Mr. Frydenberg whether Mr. Seck has the capacity to represent himself on the contempt hearing as it appeared to me that he did not. Mr. Frydenberg then acknowledged, for the first time, that the penalty phase of the contempt hearing respecting Mr. Seck could be adjourned so that a litigation guardian could be appointed. I took from this as an acknowledgment by Liquid Capital that Mr. Seck does not seem to be capable of representing himself in these proceedings.
[59] I am not persuaded that it is appropriate to adjourn the penalty phase of the contempt proceeding in order to have a litigation guardian appointed for Mr. Seck. On the basis of what I have seen in court, and what I have seen in the affidavit evidence prepared for the motion to set aside the default judgment, I am far from convinced that Mr. Seck has the capacity to either represent himself or to purge his contempt. Given that no penalty will enforce compliance with a court order by Mr. Seck or, in the circumstances, promote societal respect for court orders, I think it is only fair to put a stop to the contempt proceeding in relation to Mr. Seck by declining to impose on him the penalties sought by Mr. Frydenberg.
[60] Accordingly, the only penalty Order I will make in relation to Mr. Seck is, pursuant to rule 60.11(5)(d), that he do whatever he is capable of to assist Ms. Schoenberg in complying with the outstanding orders made against her. I would expect that he would be capable of doing very little, given his obvious memory and capacity deficits.
d) Appropriate Sentence for Ms. Schoenwald
[61] In relation to Ms. Schoenwald, I accept that there has been wilful non-compliance with the court orders. I do not accept her position that she cannot provide what she does not have. She was given very clear direction as to what steps she needed to take in order to assist in facilitating compliance with the previous court orders. For instance, in his July 21, 2017 letter, Mr. Frydenberg set out in detail everything that he expected Ms. Schoenwald to do or attempt to do. She has chosen not to do anything.
[62] Ms. Schoenwald could have purged her contempt by taking steps to provide the information sought by the plaintiff. She has chosen not to, and did not seem to me to be willing to do so in the future. I view Ms. Schoenberg’s seeming indifference to the court process to be an aggravating factor.
[63] I accept that the only explanation for Ms. Schoenwald’s conduct must be that of personal financial gain. She may not kept any money herself, but she knows that the CRA cheque has been used to pay creditors other than Liquid Capital. She is thus benefitting, at least to some extent, from her unwillingness to provide to Liquid Capital the information that it needs to try to recover the money it claims.
[64] At the same time, I recognize that Ms. Schoenwald is likely the primary caregiver for Mr. Seck. She says that she has full-time work. I do not think that a sentence should, in these circumstances, interfere with her ability to work.
[65] In my view, the only way for the court to enforce compliance with the outstanding order is to impose a short period of jail. By doing so, it is hoped that Ms. Schoenwald will realize that her conduct in these proceedings is not acceptable and that the time has come for her to comply with the court Orders.
[66] I do not view this case as one which warrants a lengthy sentence, such as those imposed in some of the cases put before me. I think that the purposes of sentencing will be accomplished by a very short, sharp sentence.
[67] On balance, I conclude that a sentence of 12 days, to be served intermittently, will be long enough to convey to Ms. Schoenwald the necessary message.
[68] Ms. Schoenwald is to attend at the Ottawa-Carleton Detention Centre, 2244 Innes Rd. Ottawa, ON, K1B 4C4 before Friday, November 24, 2017 for processing. She is then to surrender at that facility to begin serving her intermittent sentence on Friday, November 24, 2017 at 7:00 p.m.
[69] In accordance with s. 732 of the Criminal Code, while Ms. Schoenwald is serving her sentence, she will be under a term of probation, with the statutory requirements. She is, therefore, to report forthwith to the Smith Falls Probation Office located at 94 Beckwith Street North Unit G, Smiths Falls, Ontario K7A 2C1.
[70] Upon completion of her sentence, she shall have a further 30 days within which to comply with the court orders of which she stands in contempt.
The Motion to Set Aside the Default Judgment
[71] Mr. Frydenberg asks that pending the purging of the contempt, I stay the defendants’ motion to set aside the default judgment that is returnable on November 23, 2017. I understand that Liquid Capital’s position is that the motion is increasing its costs, that the defendants have not paid the costs that have been ordered against them and that the defendants cannot bring this motion while in contempt of court orders.
[72] I am not prepared to do so.
[73] In my view, the question of whether to stay that proceeding ought to be determined by the judge hearing the motion after having an opportunity to review all of the material filed. I do not yet know precisely what that material will include and think it premature to stay the motion at this point.
Costs
[74] Cost submissions were not made before me. If Liquid Capital seeks costs for November 2, 2017, it may make written submissions of not more than two pages, in addition to any Bill of Costs and jurisprudence. These submissions are to be provided within two weeks of the release of this judgment. The defendants will have ten days to respond, in written submissions of the same length. There will be no reply without leave of the court.
Order
[75] I have amended and signed the draft order that was provided to me by Mr. Frydenberg and signed a warrant of committal.
Woollcombe J.
Released: November 21, 2017
CITATION: Liquid Capital Exchange Corp. v. Blackcherry Digital Media Inc., 2017 ONSC 6909
COURT FILE NO.: 535/16
DATE: 20171121
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Liquid Capital Exchange Corp.
Plaintiff
– and –
Blackcherry Digital Media Inc. and John Mark Seck
Defendants
and
Vanora Schoenwald
Third Party
REASONS FOR JUDGMENT
Woollcombe J.
Released: November 21, 2017