Target Canada Co. (Re) 2017 ONSC 7125

CITATION: Target Canada Co. (Re) 2017 ONSC 7125

COURT FILE NO.: CV-15-10832-00CL

DATE: 2017-12-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C., 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF TARGET CANADA CO., TARGET CANADA HEALTH CO., TARGET CANADA MOBILE GP CO., TARGET CANADA PHARMACY (BC) CORP., TARGET CANADA PHARMACY (ONTARIO) CORP., TARGET CANADA PHARMACY CORP., TARGET CANADA PHARMACY (SK) CORP., and TARGET CANADA PROPERTY LLC.

BEFORE: Regional Senior Justice G.B. Morawetz

COUNSEL: Melaney Wagner and Francy Kussner, for Alvarez & Marsal Canada Inc., Monitor of the Target Canada Entities

Shawn T. Irving, for the Target Canada Entities

Daniel D. Dimovski, for the Pharmacy Franchisee Association of Canada

HEARD: October 11, 2017

ENDORSEMENT

[1] Alvarez & Marsal Canada Inc., in its capacity as Monitor of Target Canada Co. and certain of its affiliated and subsidiary entities, brings this motion for an order declaring that the claim of T. Pharmacy Limited (“T-Pharma”) claim number 1559 (“T-Pharma Claim”), has fully and finally been resolved save for the amount to be deducted on account of mitigation efforts in accordance with paragraph 78 of Claims Officer O’Connor’s ruling of October 25, 2016 (the “Mitigation Amount”).

[2] The Monitor also requests an order declaring that the Mitigation Amount of $107,190 is to be credited against loss of future profits, as set out in the revised Notice of Revision or Disallowance sent to T-Pharma on June 29, 2017; or alternatively, setting a schedule for a hearing in respect of the Mitigation Amount.

[3] T-Pharma filed its proof of claim on August 29, 2015 in the amount of $4,374,229.00.

[4] On December 1, 2015, the Monitor issued a Notice of Revision or Disallowance (“NRDA”) in respect of this claim in the amount of $92,615.08.

[5] Pharmacists Representative Counsel, which also represented T-Pharma, filed an Omnibus Notice of Dispute of Revision or Disallowance on January 7, 2016, which reasserted a claim for $4,374,229.00 in respect of T-Pharma.

[6] By order dated February 12, 2016 (the “Appointment and Fee Order”), Sutts Strosberg LLP was appointed as Pharmacist Representative Counsel to represent the interests of the Pharmacist Franchisees in respect of claims filed by the Pharmacist Franchisees.

[7] The Appointment and Fee Order referred the Omnibus Notice of Dispute to the Honourable Dennis O’Connor (the “Claims Officer”) to determine the validity and amount of the Pharmacist Franchisees’ claims. The Appointment and Fee Order also provided that the only parties entitled to participate in the claims dispute were the pharmacist franchisees, the Monitor and the Applicants. PFAC was not included as a party entitled to participate.

[8] Between February and October 2016, an extensive claims adjudication process took place before the Claims Officer regarding eight common issues agreed to by the Monitor and the Pharmacist Franchisees (the “Common Issues”) memorialized in an order of the Claims Officer dated May 3, 2016.

[9] The Claims Officer made a further order, on consent, on June 24, 2016 in respect of the Common Issues, approving the Monitor’s methodology in assessing the claims of the Pharmacist Franchisees, thereby determining what was referred to as Common Issue #4.

[10] The Claims Officer subsequently made rulings in respect of the Common Issues on June 28, 2016, August 19, 2016 and October 25, 2016.

[11] In his rulings of June 28, 2016 and August 19, 2016, the Claims Officer made certain determinations which are relevant on this motion. The Claims Officer held that, pursuant to section 12.1 of the Franchise Agreements, the Pharmacists Franchisees were not entitled to reimbursement for expenses in circumstances where such expenses would not have been incurred if the franchisor had terminated the Franchise Agreements after three years. As such, the claims sought by T-Pharma for reimbursement of expenses in connection with outstanding bank loans, lines of credit, and amounts owing to McKesson could not be recoverable.

[12] In his Ruling dated October 25, 2016, the Claims Officer stated that he was not prepared to order a uniform approach to assessing mitigation and directed the Monitor to perform individual mitigation assessments. Thus, the only amount remaining to be determined in respect of the Pharmacist Franchisees’ claim was that of the appropriate amount to be deducted in respect of individual mitigation efforts.

[13] Following the October 25, 2016 ruling, twenty-seven Pharmacists Franchisees with unresolved claims appealed the Claims Officer’s rulings to this Court. Prior to the hearing of the appeal, twenty-two Pharmacists Franchisees settled their claims.

[14] A group of five Pharmacists Franchisees, four of whom were represented by Pharmacist Representative Counsel, and one of whom, T-Pharma, was represented by Mr. Bougadis and was subsequently self-represented by Mr. Gavrilidis and Mr. Dimovski, with leave of the court, did not settle with the Monitor and continued their appeal.

[15] Before the appeals were heard, as a result of additional information provided by T-Pharma to the Monitor in respect of non-recurring expenses, the Monitor issued a Revised Notice of Revision or Disallowance in respect of the T-Pharma claim in the amount of $235,879.

[16] I heard the appeals and on May 19, 2017, I issued an endorsement which upheld the Claims Officer’s rulings and dismissed the appeals (the “Appeal Decision”).

[17] No appeal was taken from the Appeal Decision and accordingly, it is final and binding with the only matter outstanding in respect of the final determination of the five remaining Pharmacist Franchisees claims at that time being the calculation of individual mitigation.

[18] With respect to the issue of T-Pharma mitigation, the Monitor and Mr. Gavrilidis exchanged certain information in June 2017.

[19] As a result of the review of information provided, the Monitor noted the following with respect to the period from the effective date of disclaimer of T-Pharma’s Franchise Agreement (February 25, 2015) and the expiry of the initial three-year term of T-Pharma’s Franchise Agreement (March 14, 2016) (the “Mitigation Period”):

i. The pharmacist franchisees started a new business (Yorktown Pharmacy Inc.) during the Mitigation Period. The Monitor received and reviewed the financial statements and tax returns of both Yorktown Pharmacy Inc. and T-Pharma, as well as personal financial information from the pharmacist franchisee. The Monitor noted that income earned during the Mitigation Period was as a result of earnings from T-Pharma and Yorktown Pharmacy Inc.

ii. Consistent with the assessment of all Pharmacist Franchisee claims, executive wages “expensed”, as reported within the financial statements of Yorktown Pharmacy Inc. and T-Pharma, were added back to the net profit, to determine the appropriate mitigation amount (as owners’ compensation is excluded from consideration of profits earned).

[20] The annual mitigation amount was then prorated over T-Pharma’s remaining term (12 months in 2016 and one month in 2017).

[21] The Monitor has calculated that the Mitigation Amount at $101,359 in 2016 and $5,831 in 2017.

[22] The Monitor issued the Revised Notice of Revision or Disallowance on June 29, 2017, which, in taking into account T-Pharma’s individual mitigation efforts, resulted in a total allowed claim of $173,878.

[23] All of the remaining Pharmacist Franchisees, save for T-Pharma, accepted the Monitor’s Revised Notices of Revision or Disallowance, which reflected the same analysis for mitigation as that applied in respect of T-Pharma.

[24] The T-Pharma Claim has been assigned by T-Pharma to D. Daniel Dimovski, “on behalf of Pharmacy Franchisee of Canada Association (“PFAC”) in the capacity of PFAC President”.

[25] Mr. Dimovski has since advised the Monitor that PFAC cannot accept the Monitor’s Final Notice of Revision offer.

[26] Mr. Dimovski submitted documents to the Monitor on September 28, 2017 for use at this hearing, but has not clearly set out any basis for his objection to the Monitor’s assessment of its mitigation efforts.

[27] The Monitor takes the position that Mr. Dimovski is attempting to raise matters in respect of which there has already been final determinations in the Claims Officer’s rulings, as upheld on appeal, or which are irrelevant to the Monitor’s assessment of the T-Pharma claim and are therefore not appropriate.

[28] I have reviewed the documents provided by Mr. Dimovski and they are addressed in the order in which they appear in the bound document:

1. CIBC has filed a Notice of Intention to Enforce Security in the amount of $204,215.55 plus interest. It appears Mr. Dimovski has taken the position that this amount should be added to T-Pharma’s allowed claim.

[29] In his rulings dated June 28, 2016 and August 19, 2016, the Claims Officer determined that the claim sought by T-Pharma for reimbursement of expenses in connection with outstanding bank loans and lines of credit could not be recoverable. The Monitor submits that Mr. Dimovski’s raising of this issue is an attempt to re-litigate this matter and is a collateral attack on the Appeal Decision (see: Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44). I agree with the submissions made by the Monitor. The raising of this view is an attempt to re-litigate this matter. The Appeal Decision is final. This expense is non-recoverable.

2. Mr. Dimovski has submitted an Affidavit of Documents of McKesson Canada Corporation (Court File No.: CV-15-541542) in an action where T-Pharma has been sued by McKesson for $106,000. Mr. Dimovski takes the position that this amount should be added to T-Pharma’s allowed claim.

3. Statement of Claim in McKesson.

[30] This issue was addressed by the Claims Officer’s ruling and was found to be non-recoverable expenses. As with the claimed expense relating to the CIBC debt, Mr. Dimovski’s raising of this issue is an attempt to relitigate the matter and is a collateral attack on the Appeal Decision. This amount is not recoverable.

4. A cheque from T-Pharma made payable to Sutts Strosberg LLP in the amount of $10,000 with a reference to “Retainer for Target Bankruptcy – PFAC”.

[31] To the extent that Mr. Dimovski is claiming that the Franchisee is entitled to file a claim in respect of this retainer, the issue was addressed by the Claims Officer and answered in the negative. Mr. Dimovski is attempting to relitigate an issue addressed by the Claims Officer and upheld by the Appeal Decision. The amount is not recoverable.

5. Correspondence from Sutts Strosberg to PFAC on May 13, 2015.

[32] This correspondence does not pertain to the issue before me and need not be addressed by me.

6. Retainer as between Sutts Strosberg and T-Pharma and Mr. Stavros (Steve) Gavrilidis.

[33] The terms of any retainer as between T-Pharma and Sutts Strosberg is not the subject of a claim against Target Canada. This issue need not be addressed by me.

7. Notice of PFAC membership resolutions dated December 21, 2015.

[34] These resolutions do not impact on the claim of T-Pharma and need not be considered by me.

8. Correspondence from Sutts Strosberg to Pharmacist Franchisees, dated September 10, 2016 and referenced as “Offers to Settle”.

[35] This correspondence does not form part of the claim of T-Pharma and need not be considered by me.

9. Notice to Contest Motion Record of Sutts Strosberg.

[36] All issues relating to the motion of Sutts Strosberg for an order approving fees and disbursements of Pharmacist Representative Counsel have been addressed in the companion endorsement of Target Canada released today. Accordingly, this issue need not be considered in this endorsement.

10. Timeline of PFAC and Pharmacist Franchisees with W.V. Sasso and Sutts Strosberg.

[37] The timeline does not impact on the claim of T-Pharma and accordingly, it need not be considered by me.

[38] In the Monitor’s Amended Submissions, commencing at paragraph 39, the Monitor references a number of other issues raised in correspondence received by the Monitor from Mr. Dimovski and contained in Volume I of the Monitor’s Motion Record:

1. T-Pharma has not been treated consistently and fairly in the pharmacy franchise group of claims and there has been discrimination against T-Pharma.

[39] The Monitor responded to this allegation by noting that “in dismissing the appeal, Regional Senior Justice Morawetz refused to allow the re-litigation of this matter, finding it was improper to include the issue in the appeal”. I agree. This issue has been addressed with finality.

2. Requirements of good faith and due diligence have not been received by PFAC in the CCAA process.

[40] The Monitor responded that, in dismissing the appeal, I refused to allow the re-litigation of this matter, finding it was improper to include the issue in the appeal. I agree. This issue has been addressed with finality.

3. The Monitor did not perform appropriate due diligence in determining the value of the T-Pharma claim.

[41] The Monitor responded that, in dismissing the appeal, I had refused to allow the re-litigation of this matter, finding it was improper to include the issue in the appeal. I agree. This matter has been addressed with finality.

4. The Monitor granted Pharmacist Representative Counsel a $1 million “incentive”.

[42] The issue of the fees of Representative Counsel have been addressed in a separate endorsement released today. In any event, the issue is not applicable or relevant to the T-Pharma claim.

5. Pharmacist Representative Counsel refused to take direction from PFAC immediately after the Monitor offered to contribute $1 million to Pharmacist Representative Counsel’s fees.

[43] In my view, this submission is not applicable or relevant to the T-Pharma claim. The fees of Representative Counsel have been addressed in a separate endorsement.

6. Mr. Dimovski takes the position that the Court allowed Pharmacist Representative Counsel to withdraw from representing T-Pharma and allowed Mr. Gavrilidis to act for T-Pharma after no other alternative was made available, even after PFAC pleaded to allow Pharmacist Representative Counsel to continue acting for all Franchisees.

[44] This issue is addressed in my endorsement of September 26, 2016 at which time I recorded that Messrs. Dimovski and Gavrilidis did not want to be represented by Pharmacist Representative Counsel. I authorized them to retain their own counsel. This issue does not affect the claim of T-Pharma.

7. Mr. Dimovski alleged that a resolution of the claim of T-Pharma must take into account the role that T-Pharma played in the CCAA proceedings.

[45] The Monitor responded that it is not appropriate for these matters to be raised in the context of resolving the T-Pharma claims as these items are not relevant to the T-Pharma claim. I agree. There is no reason to address this matter further.

8. Mr. Dimovski submits that Pharmacist Representative Counsel and the court are making decisions that financially favour Pharmacist Representative Counsel but go against Pharmacist Franchisees collectively.

[46] To the extent that this submission references the fees of Pharmacist Representative Counsel, they are addressed in the endorsement relating to the fee approval, released today. To the extent that Mr. Dimovski questions the Appeal Decision, the Appeal Decision is a final order. This issue is not before me.

[47] Each issue raised by Mr. Dimovski fall into one of two categories. Either it is an attempt to re-litigate certain aspects of the claim which have already been determined. It is an abuse of process to attempt to re-litigate a claim which has already been determined (see Toronto (City) v. C.U.P.E., Local 79 (2003), 2003 SCC 63, 3 SCR 77). Alternatively, they are issues that are not relevant to the claim put forth by T. Pharma, as assigned to Mr. Dimovski.

[48] At paragraph 41 of its Amended Submissions, the Monitor references PFAC’s intention to bring six motions to the court. Items 1, 2, 3, 4 and 6 relate to fee issues involving Sutts Strosberg which are the subject of the companion endorsement and need not be commented upon further in this endorsement. The items covered in point 5 were the subject of a previous hearing and amount to nothing more than an attempt to re-litigate this matter and is a collateral attack on the Appeal Decision.

[49] All submissions put forth by Mr. Dimovski are rejected. An order shall issue declaring that the T-Pharma Claim and is fully and finally resolved save for the amount to be deducted on account of the Mitigation Amount.

[50] The Monitor has noted that the T-Pharma claim is the last remaining Pharmacist Franchisee claim and is one of the last remaining claims in the Estate. The Mitigation Amount in respect of this claim is to be determined on an expedited basis.

[51] Having reviewed all the materials submitted by Mr. Dimovski and having heard submissions, I have concluded that Mr. Dimovski has failed to submit any information or provide any argument to counter the position taken by the Monitor in respect of the Mitigation Amount. At the hearing, there was some suggestion that Mr. Dimovski was not prepared to address the Mitigation Amount.

[52] If Mr. Dimovski wishes to dispute the Mitigation Amount of $107,190, as proposed by the Monitor, he shall file full details for the basis of his objection no later than January 15, 2018, failing which a declaration will issue fixing the Mitigation Amount at $107,190 as calculated by the Monitor. If Mr. Dimovski does file an objection, a date for a hearing to determine the Mitigation Amount will be set on Wednesday, January 17, 2018 by way of a conference call at 8:30 a.m. The Monitor is to make arrangements for the conference call, if necessary.

[53] If the parties are unable to reach agreement on the issue of costs, written submissions can be filed with the court, to a maximum of three pages each, no later than January 15, 2018.

R.S.J. Morawetz

Date: December 5, 2017