Court File and Parties

COURT FILE NO.: CV-17-587646 DATE: 20180628 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Azcar USA, Inc. Individually, and as Assignee of Azcar Technologies Inc. and Bruce Roberts, Individually and as Trustee of the Roberts Family 1979 Trust, Roy Roberts, Individually and as Trustee of the Roy and Phyllis Roberts Trust, and Brian Roberts, Individually, and as Trustee of BKR Trust, Applicants

AND:

Royal Bank of Canada, Peter Gordon and Minden Gross LLP., Respondents

BEFORE: H. McArthur, J.

COUNSEL: H. Dorsey and C. Tan, appearing as counsel for the Applicants R. Slattery, appearing a counsel for the Respondents

HEARD: June 6, 2018

Endorsement

H. MCARTHUR J.:

Introduction

[1] The applicants are plaintiffs in an action in Pennsylvania. The Pennsylvania Court issued a “Commissions and Riders to Subpoena” (letters of request) to this court in respect of each of the respondents. The applicants seek an order giving effect to the letters of request issued by the Pennsylvania Court.

[2] For the reasons that follow I find that the application should be allowed and the letters of request enforced. The documents and information sought are relevant, necessary for trial, not otherwise obtainable and identified with reasonable specificity. Enforcing the letters of request will not be contrary to public policy, nor will it be unduly burdensome for the respondents.

[3] At the outset, I propose to briefly outline the facts. I will then turn to my analysis and explain why I have determined that the application should be allowed.

Brief Overview of the Facts

[4] The facts leading to the action in Pennsylvania and to the letters of request to this court are complicated. In my view, it is not necessary to provide a detailed outline. Instead, I will simply provide a brief overview of the facts.

[5] Azcar Technologies Inc. is a Canadian publicly traded company and the parent company of Azcar USA Inc. (collectively, Azcar). Azcar was liquidated in March 2011.

[6] Bruce Roberts, Roy Roberts, Brian Roberts and Phyllis Roberts (the Roberts) owned a company, Matchframe. Azcar purchased Matchframe. The Roberts had personal liabilities and/or indemnities related to obligations of Matchframe. Matchframe went out of business, as did Azcar.

[7] The applicants brought an action in Pennsylvania, alleging breach of fiduciary duty against former officers and directors of Azcar. It is alleged that the defendants in the Pennsylvania action 1) failed to adequately capitalize Matchframe after it was acquired by Azcar; and 2) were grossly negligent and reckless in their management of Matchframe after it was acquired by Azcar, leading to the demise of Matchframe and ultimately the demise of Azcar.

[8] Two of the defendants in the Pennsylvania matter, Stephen Pumple and Gavin Schutz, were former executive officers of Azcar, who set up a new company immediately before Azcar shutdown. Their company, Digitiz Inc., operated the same type of business as Azcar. It is alleged that Mr. Pumple and Mr. Schutz took proprietary information and assets of Azcar for their benefit and for the benefit of Digitiz. Mr. Pumple was also alleged to have been involved in another company, Megahertz. It is alleged that Megahertz was sold and that the sale proceeds went to pay off the indebtedness of Azcar to Royal Bank of Canada (RBC).

[9] The respondents in the present application are not defendants in the Pennsylvania action. RBC, however, was the lead lender for many years for Azcar. RBC was the lender for a loan to Azcar that went into default at some time before 2008. Peter Gordon was an officer at RBC who was responsible for loans in default. Mr. Gordon was responsible for the loan account of Azcar when Azcar’s loans with RBC went into default at some time prior to 2008, and continuing thereafter until December 2010. Minden Gross represented RBC during the workout through Azcar’s paying-off of the loan to RBC in December 2010.

[10] The position of the applicants is that in the spring of 2010, the Azcar directors and officers began liquidating assets for the benefit of RBC, which resulted in diminished revenues for Azcar, which impeded its ability to operate. At the time of Azcar’s liquidation in March 2011, Azcar had many unpaid debts, including debt owed to landlords, employees and other creditors. RBC, however, was paid in full by the end of 2010.

[11] Paragraph 178 of the pleadings filed by the applicants in the Pennsylvania matter asserts:

Moreover, in the face of information clearly indicating that Matchframe was a struggling company in need of significant funding, capitalization and investment, the Board Members permitted the officers of the Companies and management to operate Matchframe in a manner with drained the Companies of their cash, credit and asset value, which served largely for the benefit of RBC, and which resulted in the rapid decline of both Matchframe’s and the Companies business and value, all to the detriment of the Companies and creditors. (emphasis added)

[12] Stephen Packman is a lawyer representing the plaintiffs in the Pennsylvania action. He deposed that he reviewed the companies’ files and concluded that the files and records are incomplete in respect of the defendants in the action. As a result he attempted to obtain documents from RBC and Minden Gross, to no avail.

[13] On October 27, 2017, pursuant to the applicants’ request, the Pennsylvania Court issued Commissions and Riders to Subpoena in respect of RBC, Mr. Gordon and Minden Gross. The court noted in each commission as follows:

Our Court having reviewed the request for evidence made by the Plaintiffs, and our Court having determined, among other things, that (i) the evidence sought is relevant to the within civil proceeding; (ii) the evidence is necessary for trial and may be adduced at trial, if admissible; (iii) the evidence is not otherwise obtainable outside of the jurisdiction of Your Honourable Court; (iv) the evidence sought is not contrary to public policy; (v) the evidence sought has been identified with reasonable specificity; and (vi) the evidence sought will not impose undue burden on any witness from whom such evidence is requested.

Analysis

[14] Section 60(1) of the Ontario Evidence Act, R.S.O. 1990, c. E.23 and s. 46(1) of the Canada Evidence Act, R.S.C. 1985, c. C-5, provide authority for this court to enforce letters of request. An order to enforce is discretionary.

[15] In Zingre v. The Queen et al., [1981] 2 S.C.R. 392, at para. 18, Dickson J. explained how to exercise this discretion, having regard to issues of sovereignty and comity as follows:

It is upon this comity of nations that international legal assistance rests. Thus the courts of one jurisdiction will give effect to the laws and judicial decisions of another jurisdiction, not as a matter of obligation but out of mutual deference and respect. A foreign request is given full force and effect unless it be contrary to the public policy of the jurisdiction to which the request is directed or otherwise prejudicial to the sovereignty or the citizens of the latter jurisdiction. (Citations omitted.)

[16] As noted in Treat America Ltd. v. Nestle Canada Inc., 2011 ONCA 560, at para 19, the law is clear that the requesting court’s decision is entitled to “considerable deference” by the Canadian court. The court receiving the request for assistance does not sit as an appeal court from the decision of the requesting court: Trieze Management Group Inc. v. Fieldturf International Inc., [2005] O.J. No. 4359 (S.C.), at para 21.

[17] Before an order enforcing a letter of request will be warranted, the evidence must establish that:

i. the evidence sought is relevant; ii. the evidence sought is necessary for trial and will be adduced at trial, if admissible; iii. the evidence is not otherwise obtainable; iv. the order sought is not contrary to public policy; v. the documents sought are identified with reasonable specificity; vi. the order sought is not unduly burdensome, having in mind what the relevant witnesses would be required to do, and produce, were the action tried here.

(See Treat Canada Ltd., v. Leonidas, 2012 ONCA 748, at para. 19; Presbyterian Church of Sudan (Re), [2006] O.J. No 3822 (C.A.), at para. 20.

[18] I will address each consideration in turn.

i. Is the evidence sought relevant?

[19] Whether or not the requested evidence is relevant is an important consideration. Without some showing of relevance, the court may be “sanctioning a fishing expedition and requiring one of its citizens to participate in a process that may be of no assistance to the foreign litigation”: Presbyterian Church, at para. 31.

[20] The respondents argue that the evidence sought is irrelevant. They rely heavily on the fact that Mr. Packman told the Pennsylvania court that the evidence “may shed light” on the issues. Thus, the respondents argue that at most, the evidence is potentially relevant.

[21] I cannot accept this submission. Evidence is relevant if it has a tendency, as a matter of logic, common sense and human experience, to help resolve an issue at trial: R. v. White, 2011 SCC 13.

[22] In my view, the evidence sought is clearly relevant. The pleadings filed in the Pennsylvania action assert that the defendants there acted in a manner which benefited RBC, but left Matchframe underfunded and ultimately led to the demise of both Matchframe and Azcar.

[23] The documents and information sought to be produced from RBC and Minden Gross are as follows:

a) documents regarding loans or credit facilities provided by RBC to Azcar, Matchframe or Megahertz; b) documents regarding workouts, wind-downs, modifications, defaults, or forbearance agreements provided to Azcar, Matchframe or Megahertz; c) correspondence between RBC and Azcar, Matchframe or Megahertz; and d) correspondence between Mr. Gordon and Mr. Pumple, Mr. Schutz, Sean Fleming (the Chief Financial officer of Azcar USA until December 2010) or Sean Casey.

[24] In addition to dealing with the requested documents, the topics proposed for the examination of Mr. Gordon deal with the following:

a) any loan, credit facility, or agreement between RBC and Azcar, Matchframe or Megahertz; b) any income statements, profit and loss statements, tax returns, or other financial statements submitted by those companies to RBC; c) any bank accounts maintained by the above companies with RBC; d) the wind-down and sale process relating to Matchframe; e) Azcar’s repayment of obligations and exit from RBC.

[25] The Pennsylvania court found that the requested documents and information are relevant. That determination is entitled to deference. As noted above, it is not this court’s role to sit as an appeal court from the decision of the requesting court.

[26] In any event, I agree with the requesting court that the documents and information sought are relevant. They are relevant to the issues pleaded by the applicants in the Pennsylvania action, particularly as they relate to Azcar’s acquisition of Matchframe, the management and financial affairs of Azcar and Matchframe, the financial deterioration of Matchframe and Azcar, the sale of Megahertz, and the transfer of funds and repayments to RBC.

[27] More particularly, at paragraphs 74 and 80 of their factum, the applicants set out a list of 11 areas to which the evidence is relevant. I do not propose to list them all. Suffice to say that I agree that the proposed evidence is relevant to each of the issues raised in those paragraphs. To take but one example, the applicants say that the evidence sought is relevant to the use of Matchframe’s revenue and assets to fund Azcar and pay down their debt to RBC. I agree with this assessment.

ii. Is the evidence sought necessary for trial?

[28] The Pennsylvania court found that the documents and information sought from RBC, Mr. Gordon and Minden Gross are necessary for trial. That finding is entitled to deference.

[29] The respondents argue that the documents are being sought for pre-trial purposes and thus it has not been established that the information is necessary for trial. I cannot accept this argument.

[30] As clarified by the Ontario Court of Appeal in Lantheus Medical Imaging Inc. v. Atomic Energy of Canada Ltd., 2013 ONCA 264, at para. 63, there “is no rule against making such an order in relation to pre-trial proceedings.” The respondents’ position is contrary to this binding authority.

iii. Is the evidence not otherwise obtainable?

[31] The Pennsylvania court found that the evidence was not otherwise obtainable. That finding is entitled to deference.

[32] The respondents argue, however, that the court got it wrong. The respondents argue that the applicants have had access to some documentary production. For example, the applicants are able to identify and describe the date of the Credit Facilities and the Forbearance Agreement, including the exact dates that gave rise to the enforcement of the RBC loan indebtedness. Thus, the respondents argue that the applicants have failed to establish that the evidence sought is not otherwise obtainable. I cannot accept this submission. The fact that the respondents can point to two documents already in the possession of the applicants does not establish that the bulk of the information they are seeking is thus obtainable.

[33] Moreover, the respondents rely heavily on Presbyterian Church in arguing that the applicants have failed to establish that the documents and information sought are not otherwise obtainable. In my view, however, that case is highly distinguishable. There, the applicants sought to examine a manager from Talisman, a company that operated out of Sudan. By that time, however, the applicants had already examined twenty-one executives from Talisman. There was no evidence to suggest why the individual sought to be examined would have information not already obtained from the other executives who had been examined. That is very different from the present case, where Mr. Gordon was the individual from RBC directly involved in the matters at issue.

[34] Moreover, Mr. Packman reviewed the matter and deposed that items were missing. He further deposed that he had been frustrated in his attempts to obtain the sought after documents. The respondents chose not to cross-examine Mr. Packman on these issues. Based on the evidence before me, I am satisfied that the evidence sought is not otherwise obtainable.

iv. Is the order sought contrary to public policy?

[35] There is no suggestion that the order sought is contrary to public policy.

v. Are the documents sought identified with reasonable specificity?

[36] In their factum, the respondents do not assert that the documents sought are not identified with reasonable specificity. In oral submissions, however, the respondents argued that the documents sought were not sufficiently identified. I cannot accept this argument.

[37] Documents will be found to be identified with sufficient specificity if identified by topic or class: Friction Division Products Inc. and E.I Du Pont de Nemours & Co. Inc. et al. (No.2), [1986] O.J. No. 1029 (H.C.J.), at para. 38; General Conference of Seventh-Day Adventists v. Tiffin, [2000] O.J. No. 3506 (S.C.), at para. 23; aff’d [2001] O.J. No. 885 (C.A.).

[38] In the present application, the documents sought have been identified by topic. Thus, I find that documents sought have been identified with reasonable specificity.

vi. Is the order sought unduly burdensome?

[39] The respondents argue that the order sought is unduly burdensome. The respondents, however, failed to file any affidavit material outlining the anticipated effect of the order. There is no evidence to support the claim that the order sought would be burdensome.

[40] This can be contrasted with the evidence before the court in O.P.S.E.U. Pension Trust Fund (Trustee of) v. Clark, [2006] O.J. No. 2475 (C.A.), at para. 8. In that case, affidavit evidence established that compliance with the sought after order would entail “considerable time and efforts, and expense.” Despite that, the court concluded that the order would not be unduly burdensome. Part of the reason for so concluding was that the letters of request were directed to two individuals at Deloitte & Touche LLP, and Deloitte was obliged by professional standards to compile and secure its documents in such a way that they would be available for regulatory entities and audits. The court also noted at para. 23 that “Requests for the production of voluminous documentation, in electronic and hard copy form, are hardly unknown in today’s world of complex general and class action litigation.”

[41] Similarly, RBC and Minden Gross would be obliged by professional standards to compile and secure their documents in a manner in which they can be properly accessed. Moreover, RBC and Minden Gross, as sophisticated entities, would know that at times, requests may be made for the production of voluminous documents.

[42] Given that, and the failure of RBC, Mr. Gordon and Minden Gross to file any affidavit evidence outlining the potential impact on them if the letters of request were enforced, I am not satisfied that the sought after order would be unduly burdensome.

vii. Additional issues raised by Minden Gross

[43] Minden Gross raises two additional issues. First, Minden Gross argues that it was not referred to in the petition brought before the Pennsylvania court, and thus there is no evidentiary basis to make an order against the law firm. I cannot accept this argument. In the Overview of Relief Sought, Minden Gross is named and identified as counsel to RBC during the applicable time period. Moreover, Minden Gross is one of the parties collectively referred to as the “Foreign Request Parties” within the petition. The Pennsylvania court had an evidentiary basis to issue the letter of request with respect to Minden Gross.

[44] Second, Minden Gross raises the issue of solicitor-client privilege as a reason why the letter of request should not be enforced. In my view, however, there are three reasons why any privilege concerns raised by Minden Gross do not militate against enforcing the letter of request. First, Minden Gross provided no affidavit material outlining or identifying any such concerns. Second, the letter of request as it relates to Minden Gross is seeking documents that would not seem to be covered by solicitor-client privilege. Third, in the event that any of the documents to be produced are covered by privilege that can be easily addressed. Minden Gross can produce those documents that are not privileged. It can then withhold any documents over which it claims privilege and alert the applicants that privileged material has been withheld.

Conclusion

[45] I am satisfied that the letters of request from the Pennsylvania court should be enforced. The documents and information sought are relevant, necessary for trial, not otherwise obtainable and identified with reasonable specificity. The order sought is not contrary to public policy, nor would it be unduly burdensome for the respondents.

[46] Mr. Packman provided an undertaking in his affidavit that any information, evidence and documents obtained as a result of the letters of request would be used only for the purpose of advancing the action and for no other purpose. While he also purported to give this undertaking on behalf of the applicants, the respondents argue that the applicants should be required to personally provide the same undertaking. The applicants do not take issue with this.

[47] Thus, subject to the applicants providing an undertaking, the application is allowed. The letters of request from the Pennsylvania court should be enforced.

Costs

[48] I encourage the parties to see if they can agree on costs. If the parties are unable to agree on costs, the applicants shall serve and file with my office written costs submissions within 15 days. The respondents shall serve and file with my office any responding costs submissions within 15 days thereafter. The written submissions shall not exceed three pages in length, excluding the Costs Outline.

Justice Heather McArthur Date: June 28, 2018