Court File and Parties

Citation: Den Elzen v. Kelly, 2017 ONSC 98 Court File No.: CV-12-454756 Date: 2017-01-17 Superior Court of Justice - Ontario

Re: Carolyn Den Elzen, personally, and as Estate Trustee for the Estate of Stephen Den Elzen, Plaintiff And: Sean Kelly, Paul Hutchison, Dana Deelen, Glen Morash and the Regional Municipality of Peel Police Services Board, Defendants

Before: Stewart J.

Counsel: Andrew Suboch, for the Plaintiffs Gavin J. Tighe and Anna Husa, for the Defendants Sean Kelly and Paul Hutchison

Heard: August 22, 2016

Endorsement

Nature of the Motion

[1] The Defendants Sean Kelly (“Kelly”) and Paul Hutchison (“Hutchison”) move pursuant to Rule 20 of the Rules of Civil Procedure for summary judgment dismissing this action against them. They submit that there is no genuine issue requiring a trial.

[2] The Plaintiffs (the “Den Elzens”) have agreed to a dismissal of their action as against Hutchison. Upon the filing of a consent executed on behalf of all parties, judgment shall issue dismissing all claims against him. Hutchison reserves his entitlement to seek costs.

[3] The Den Elzens wish to continue to pursue their claims for damages as against Kelly. They argue that this case is not an appropriate one for disposition by summary judgment and maintain that the action should be allowed to proceed to trial.

[4] The Defendants Dana Deelen, Glen Morash and the Regional Municipality of Peel Police Services Board (the “Police Defendants”) take no position on this motion, and have not brought any companion motion seeking relief.

Background

[5] Kelly is one of the founding members of a diaper business called Diapers Ontario. In the late 1990s, the business was expanding into the US and needed to hire a person to manage the Ontario operations.

[6] In 1999 Stephen Den Elzen was hired to manage Diaper Ontario’s operations in Ontario. Stephen was appointed Managing Director of Diapers Ontario and then also became Chief Operating Officer of Diapers International.

[7] In January 2001, Stephen hired his wife, Carolyn Den Elzen, as General Manager of Diapers Ontario.

[8] The Den Elzens were responsible for all day-to-day bookkeeping functions and financial operations at Diapers Ontario.

[9] The Den Elzens claim that Kelly waged a malicious campaign against Stephen when he refused to go along with Kelly’s proposals designed to dilute the ownership of the other shareholders in Diapers Ontario.

[10] It is further alleged that Kelly took improper steps to attempt to thwart the granting to Stephen of an equity position that had been promised to him by the company.

[11] It is also asserted on Stephen’s behalf that between 2002 and 2005 Kelly made unfounded accusations of negligence or misconduct against Stephen.

[12] Between 2002 and 2005, the relationship between Kelly and Stephen deteriorated. Kelly complained about Stephen’s purported failure to provide regular up-to-date financial reporting to him and to the other shareholders. There were several other issues that fuelled the deterioration of the relationship, and each party has his or her own version of events and interpretation of them.

[13] On December 31, 2005, the Den Elzens decided to leave the company. Each negotiated a severance package.

[14] After the Den Elzens had departed, Kelly claims he found cheques written by Stephen on the corporate account for Diapers Ontario. These cheques were drawn for an amount exceeding $104,000.00. All cheques were payable either to Stephen personally or to financial institutions and credit card companies in which, according to Kelly, Diapers Ontario did not have accounts.

[15] Two of the accounts into which these cheques had been deposited were bank accounts into which the Den Elzens’ usual salaries were paid.

[16] Kelly says he searched the office and warehouse for receipts and other supporting documentation in an effort to substantiate that these cheques were proper reimbursements of legitimate business expenses, but could not find any such substantiation.

[17] Kelly asked Stephen to provide supporting documentation or show him where supporting documentation was located. Kelly wrote several emails and letters to Stephen to seek information. Kelly says that neither of the Den Elzens provided any explanation or supporting documentation to Kelly to substantiate the transactions as legitimate business expenses.

[18] Carolyn has admitted that she and Stephen made a deliberate decision not to respond to Kelly’s follow-up requests for clarification as they viewed his conduct as harassment and vindictive pestering.

[19] Ultimately, Diapers Ontario stopped Stephen’s remaining severance payments based upon his failure to provide the information and documentation requested of him.

[20] No civil action for damages was ever brought against the Den Elzens by Diapers Ontario or Kelly in relation to any allegations of fraud on these cheques.

[21] In 2006, Kelly sought legal advice from Alvin Shidlowski about how to deal with the issue of these unexplained payments. Kelly says he was advised by Shidlowski that he could contact the police and perhaps obtain a restitution order as part of the final disposition of any charges laid by the police against Stephen.

[22] Kelly says he struggled with the concept of reporting Stephen to the police. Almost two years after first consulting him, Kelly again consulted Shidlowski and then decided to contact the police. He admits that the potential availability of a restitution order as a means of obtaining financial recovery was the main reason he decided to involve the police at that time.

[23] Shidlowski assisted Kelly in drafting a statement which was provided by Kelly to the police on November 24, 2008. Kelly’s statement sets out his version of the history of the Den Elzens with Diapers Ontario, the particulars of the impugned cheques, the history of Kelly’s requests for supporting documentation and the Den Elzens’ failure to respond.

[24] The Den Elzens take issue with many of the facts asserted by Kelly in his statement to police. They characterize his statement to police as false, defamatory and malicious and claim damages from him as a result. They argue that the provision of the statement and the allegations in it constitute a vehicle improperly motivated by his desire to prosecute them and to secure re-payment by them of what was an alleged and very much disputed civil debt. They further allege that all documentation and information to explain the purposes of the impugned cheques was within Kelly’s possession or otherwise available to him.

[25] The Den Elzens also allege that throughout their relationship Kelly had been engaging in activity designed to dilute their ownership in the business and was otherwise persistently seeking to financially disadvantage them for his benefit. They allege that Kelly’s actions in pursuing them by means of criminal charges were carried out in furtherance of that ulterior aim.

[26] On the morning of October 14, 2010 a.m., without any prior contact or warning, the Den Elzens were arrested at their home in front of their children, their children’s school classmates, and their neighbours.

[27] Stephen was charged by police with fraud and breach of trust offences under the Criminal Code. Carolyn was charged with fraud.

[28] On October 24, 2010, Kelly sent an email to the police stating that Stephen had been previously sued by his own family and suggested that the police should bring that information to the Crown Attorney. The Den Elzens say this statement was by Kelly to the police completely false.

[29] The Den Elzens retained defence counsel, Jay Naster, to defend them against the charges they faced. Naster wrote a series of letters to the prosecuting Crown Attorney requesting comprehensive disclosure and encouraging that a review of the file with greater scrutiny be undertaken by the prosecution.

[30] Naster requested disclosure from the Crown Attorney of many relevant documents that had not been provided by Kelly to the police. Some of those documents (said to have not yet been even disclosed in these civil proceedings) include cheque stubs or vouchers relating to the impugned cheques and the invoices which correspond to them, minutes from board meetings and meetings of the company shareholders, board resolutions, financial statements and various other financial reviews and reports relating to the business affairs of the company.

[31] The Den Elzens maintain that it was not uncommon for directors and officers to pay for expenses incurred in the operation of the company using personal credit or debit accounts, and to reimburse themselves with company cheques, so the deposit of company cheques into accounts controlled by such individuals would not be uncommon.

[32] The faces of and vouchers for all cheques issued by the company account were recorded electronically in its “Quickbook” system. Each voucher contains a reference column to provide information explaining the purpose for which each cheque was issued. Along with other relevant documentation, the vouchers and invoices corresponding to them regarding all impugned cheques were left in the care and control of the company when the Den Elzens left Diapers Ontario and Kelly took over.

[33] Regarding certain “Wells Fargo” impugned cheques, the Den Elzens say that a line of credit was opened on behalf of Diapers Ontario to pay back investors/creditors and to be a source for financing operating costs. Officers of the company knew about the line of credit and, indeed, lobbied to have Stephen open it since the company did not have the requisite credit to open one on its own. The mailing address associated with the line of credit was that of the Brampton office for Diapers Ontario. At least one transfer of monies from the line of credit was made to the company account.

[34] Naster’s letters of February 18 and August 9, 2011 to the Crown Attorney provided the Den Elzens’ explanation and documentation to support expenses paid for by at least 35 of the 54 impugned cheques. The Den Elzens maintain that greater or full disclosure of company documentation by Kelly would have permitted them to provide further explanation of any discrepancies.

[35] On October 7, 2011, the Crown Attorney withdrew all charges against the Den Elzens with prejudice.

[36] The Den Elzens claim damages for their arrests and the criminal proceedings against them and allege that, among other things, depression, anxiety and humiliation resulted. The Den Elzens also allege they suffered financial distress from the costs incurred in defending the charges and from the loss of business opportunities.

[37] Stephen, a graduate of the London School of Economics, and licensed by the Law Society of Upper Canada, had significant experience as a management consultant and business owner and operator. He claims that he could not find regular work for more than two years after being criminally charged.

[38] Carolyn states that she was unable to find regular work for several years after being the subject of these criminal charges.

[39] On May 29, 2012, the Den Elzens commenced this action as against Kelly, Hutchison and the Police Defendants.

[40] Among other allegations, the Den Elzens claim that Kelly:

(a) failed to investigate adequately or at all the accuracy of information regarding Stephen and his involvement with Diapers Ontario which was subsequently relied on by the police;

(b) provided information to the police that he knew or ought to have known was false and/or inaccurate; and

(c) negligently or fraudulently misrepresented the Den Elzens in the statements provided to the police relied on to form the basis of the criminal charges.

[41] The Den Elzens also claim damages for malicious prosecution and defamation from Kelly. Specifically, they allege that Kelly initiated criminal proceedings against them by giving false information and statements to the police about them maliciously and for an improper purpose.

[42] The Statement of Claim was served on all Defendants except Kelly and Hutchison. In July 2013, the Den Elzens moved to amend the Statement of Claim and extend the time for service upon the Kelly and Hutchison. Following extensive search efforts, Hutchison was served on January 16, 2013. Kelly could not at that time be located.

[43] On September 17, 2013, the Statement of Claim was permitted to be amended by Order of Master Graham on consent and without prejudice to the Kelly’s position that the action was not actually commenced until the date on which the Amended Statement of Claim was filed.

[44] In January 2014, Stephen died in a single vehicle car accident. This action has been continued by his Estate Trustee.

[45] In her claim for accident benefits, Carolyn sought benefits for psychological injuries sustained by her as a result of her husband’s death. Kelly appears to be arguing that this is proof that any injuries she suffered were not caused by his conduct in any way and that a summary dismissal of her claim should follow.

[46] Full production by and discovery of all of the parties to this action has not been completed. The Police Defendants have not yet been examined for discovery. Although they advance no specific crossclaims against Kelly, I note they have pleaded the Negligence Act in their Amended Statement of Defence.

[47] As mentioned above, the Police Defendants have not brought any companion motion to dismiss this action. No facts on their behalf have been tendered on this motion by way of affidavit evidence or evidence given on examination for discovery.

Law and Discussion

[48] Should summary judgment dismissing the action as against Kelly be granted?

[49] Summary judgment is available if there is no genuine issue that requires a trial for determination. There will be no genuine issue requiring a trial when the motion judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process allows the judge to make the necessary findings of fact, to apply the law to the facts, and is a proportionate, more expeditious and less expensive means to achieve a just result (see: Hyrniak v. Mauldin, 2014 SCC 7).

[50] A party who seeks summary dismissal of an action bears the evidentiary burden of showing that there is no genuine issue requiring a trial. The moving party must prove this with affidavit or other evidence. Kelly argues that he has discharged that burden.

[51] After the moving party has discharged its preliminary evidentiary burden, the onus falls on the responding party to show that a genuine issue requiring a trial has been raised. Kelly argues that the Den Elzens have failed to show that any genuine issue for trial has been raised.

[52] The Den Elzens’ first position in responding to this motion is that it is premature. Secondly, they argue that genuine issues for trial have been raised by them.

[53] I am in general agreement with the argument advanced by the Den Elzens that, even in those cases in which a summary judgment motion may eventually be available, it should not be brought until the issues in the action are appropriate to be heard in a summary manner. A summary judgment motion is premature where the bringing of it does not serve the principles of proportionality, timeliness and affordability.

[54] In particular, although Hyrniak may represent a significant expansion of the procedures available to adjudicate civil claims, the summary judgment avenue is not necessarily the ideal or preferred means in all, or even most, cases to provide the quickest and comparatively most inexpensive for resolving disputes fairly. Each case must be evaluated on its own facts and merits and the suitability of the summary judgment process must be assessed in the context of the litigation as a whole (see: Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450).

[55] Similarly, if a trial is necessary for some of the claims in any event, it may not be in the interests of justice to use the fact-finding powers under Rule 20 to grant summary judgment because of the risk of duplicative proceedings or inconsistent findings of fact (see: Hyrniak, para. 60).

[56] Having said that, with respect to the Den Elzens’ claims of negligent or fraudulent misrepresentation made against Kelly, I consider that it is manifestly evident on the pleadings and the material filed on the motion that this aspect of the claim should be dismissed as requested by Kelly. The necessary elements of the tort of misrepresentation, whether negligent or fraudulent, have not been made out. The Den Elzens did not rely on any of Kelly’s alleged misrepresentations. Rather, the fact that information was provided to the police by Kelly, described by them as misleading or false, is subsumed within the other causes of action pleaded.

[57] However, I am of the view that a fair and just assessment and result with regard to the balance of the causes of action asserted on behalf of the Den Elzens cannot be reached at this stage of the proceedings and on the record developed thus far. Hence, resort to the Rule 20 summary judgment process is inadvisable in light of the litigation as a whole which includes the fact that there are outstanding claims against the Police Defendants.

[58] With respect to the Den Elzens’ claims of defamation, although malice has not been specifically pleaded, the circumstances surrounding the making by Kelly of the alleged statements are argued to amount to an improper purpose which is essentially malice. I agree with that characterization and do not consider it fatal that the word “malice” has not been specifically employed so as to defeat any defence of qualified privilege. It is also obvious that a companion claim of malicious prosecution has been advanced against Kelly (see: Nelles v. Ontario, 1989 CanLII 77 (SCC), [1989] 2 S.C.R. 170).

[59] Kelly argues that the facts do not support a claim for malicious prosecution in that only that part of the ingredients of the tort requiring that the proceedings be terminated in favour of the Den Elzens has been demonstrated. Kelly says the evidence does not demonstrate that the proceedings were initiated by Kelly, that there was an absence of reasonable and probable cause to initiate proceedings, and the proceedings were initiated by him with malice.

[60] Although in such cases the decision to arrest lies with the police and the decision to prosecute lies with the Crown, it is not an unknown legal concept that the individual who actively sets the wheels in motion and provides misleading evidence and/or withholds exculpatory evidence may be liable for malicious prosecution (see: Kefeli v. Centennial College of Applied Arts and Technology, 2002 Carswell Ont 2539; McNeil v. Brewers Retail Inc., 2008 ONCA). The extent and quality of the evidence on this motion does not permit a determination of these issues to be made at this stage.

[61] With respect to the discrete claims of negligence against Kelly, the circumstances at present do not eliminate the possible existence of a duty to the Den Elzens and a breach of that duty by Kelly (see: Cooper v. Hobart (2001), 2001 SCC 79, 206 D.L.R. (4th) 193 (S.C.C.)).

[62] Likewise, the fact that Carolyn described her damages as she did in her claim for accident benefits does not eliminate or extinguish her claim that Kelly’s conduct caused injury to her and Stephen.

[63] Finally, Kelly argues that the Plaintiffs’ allegations regarding defamation, negligence and misrepresentation are statute-barred pursuant to s. 4 of the Limitations Act, 2002.

[64] The Den Elzens take the position that the existence of their claims for negligence and defamation were not known to them until March of 2011 when they retained counsel. Thus, they argue that a discoverability issue has been raised by them. Further, their claim for malicious prosecution does not arise until the charges against them were withdrawn.

[65] I therefore view the issues of fact and the apparent conflict in evidence on this issue are such that a fair and just determination of the discoverability issue at this stage, before full discovery of the parties has been completed, cannot be made.

Conclusion

[66] For these reasons, the motion is granted insofar as the claim for negligent or fraudulent misrepresentation is concerned and that claim is dismissed. Kelly’s motion otherwise fails. This disposition is without prejudice to the entitlement of any party to bring a fresh motion for summary judgment, if and when one may be appropriate.

Costs

[67] If the parties cannot agree on the subject of costs, written submissions may be delivered by the Den Elzens within 20 days of this decision and by Kelly within 15 days thereafter.

Stewart J.

Date: January 17, 2017