COURT FILE NO.: CV-18-157-00
DATE: 2018-07-30
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Northwestern Veterinary Professional Corporation
Plaintiff
- and -
Patrick Blakeman
Defendant
Mr. W. Mouck, for the Plaintiff
Not Appearing
HEARD: July 25, 2018, at Thunder Bay, Ontario
Mr. Justice F. B. Fitzpatrick
Reasons For Judgment on Undefended Trial
[1] The plaintiff sues the defendant for:
a) Damages in the amount of $37,643.99 arising from theft and misappropriation of funds;
b) A declaration that the defendant obtained the sum of $37,643.99 from the plaintiff by way of fraud and that this amount shall survive any possible subsequent order of discharge pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act R.S.C. 1985 c. B-3;
c) Punitive damages in the amount of $50,000.00;
d) Pre and post judgment interest; and
e) Costs.
[2] The defendant did not defend the action despite being properly served as found by Nieckarcz J. on June 29, 2018. The defendant was noted in default and Nieckarcz J. ordered this matter proceed as an undefended trial.
[3] The plaintiff operates a veterinary clinic in Thunder Bay. The defendant was a receptionist and had been employed for 25 years. He was terminated from the business as a result of the allegations of theft the plaintiff seeks to prove on this undefended trial. The plaintiff called three witnesses at this hearing. An order excluding witnesses was provided at the commencement of the trial. A summary of the evidence of the three witnesses is as follows:
Dr. Calli Thompson
[4] Dr. Thompson is a veterinarian. She has been employed by the clinic since October 2010. She has been a shareholder of the plaintiff since 2014. She holds the title "managing partner". In that capacity she has the responsibility for overseeing staff relations in the business, including oversight over the defendant.
[5] In addition to the vive voce testimony given by Dr. Thompson, she also filed an affidavit dated June 19, 2018. This evidence was adopted and confirmed during her testimony.
[6] Dr. Thompson testified Mr. Blakeman was a long time employee of the business. He worked as a receptionist but had additional duties overseeing the other 15 receptionists who worked at various times for the plaintiff. In that capacity, Mr. Blakeman was especially trusted to ensure that financial transactions for the corporation were conducted in a manner that benefited the shareholders of the corporation and the business itself. He was given extra duties in respect of making daily cash deposits for the business. He was responsible for training new staff and ensuring they were familiar with office practices.
[7] The corporation uses a practice management software program called Impromed. Impromed recorded all relevant patient records, veterinarian's notes, appointments and financial transactions related to the clinic's animal patients. If a refund was required for service rendered by the plaintiff to a particular patient it was recorded in Impromed. Actual payments and refunds were processed by a third party financial services company who furnished the corporation with four or five point of sale terminals that ran a software program called Pivotal 360. Any payments or refunds to customers were done on the point of sale terminals. These transactions had to be approved by a notation in the Impromed program.
[8] As a security measure, the shareholders of the corporation were required personally to process any and all refunds to customers. Refunds were to be recorded on the Impromed patient files. A refund transaction required the entry of a secret PIN that was unique to each and every shareholder and was to be known only by the individual shareholders. Dr. Thompson testified that Mr. Blakeman stole the PIN that had been assigned to another shareholder Dr. Jack Hansen. She further testified that Mr. Blakeman stole some $37,000.00 from the corporation by making unauthorized refunds to an account that Dr. Thompson believed was owned by Mr. Blakeman.
[9] In November 2017, Dr. Thompson met with the corporation's bookkeeper Ms. Jean Dobrocky. Ms. Dobrocky said she had identified numerous refunds that that had been processed by Mr. Blakeman which did not appear to be authorized. As the result of the financial records that had been accumulated by Ms. Dobrocky further to her concerns about Mr. Blakeman's actions, Dr. Thompson and the other shareholders formed the opinion that Mr. Blakeman had been stealing from the business and he should be terminated for cause. A termination letter was provided to Mr. Blakeman dated November 10, 2017. The police were called. The police retrieved the keys to the corporation's premises from Mr. Blakeman. The corporation has requested that criminal charges be laid against Mr. Blakeman.
Jean Dubrocky
[10] Ms. Dubrocky is the bookkeeper for the corporation. She has been a bookkeeper for over 30 years. She has worked for the corporation as its bookkeeper for the past five and half years.
[11] In September 2017, Ms. Dubrocky noticed as discrepancy in a daily reconciliation report that she had prepared. She observed that a number of refunds had been processed by Mr. Blakeman ostensibly on the authority of Dr. Jack Hansen. She noticed the refunds related to activities that had occurred some nine months earlier in January 2017. This struck Ms. Dobrocky as odd.
[12] At the end of October, Ms. Dubrocky had further problems with her daily balance. Again the problems related to refunds processed by Mr. Blakeman. She noticed the refunds were all being paid to the same bank account. This was very unusual. When the problem continued into November, Ms. Dubrocky decided to pull all records of refunds that had been directed to the specific bank account that had the account number 451901******0478. All these refunds had been initiated by Mr. Blakeman. All the refunds were for different patients. Yet all the refunds were paid to the same bank account.
[13] During her evidence, Ms. Dubrocky identified a bound book of business records from the corporation for September, October and November 2017. The records consisted of a spreadsheet summary that Ms. Dubrocky produced, a summary of the Pivotal 360 point of sale refund transactions, and the Impromed records for each and every transaction for which a refund had been given. The majority of the refunds appeared to have been authorized by Dr. Jack Hansen. Each and every Impromed record was for a different patient.
[14] There were a total of 119 refunds flagged by Ms. Dubrocky. The number of refunds and the total for each month were as follows:
August 2017, 3 refunds totaling $658.90;
September 2017, 36 refunds totaling $9,950.16;
October 2017, 58 refunds totaling $19,014.87;
November 2017, 19 refunds totaling $8,020.06
[15] The total of these refunds was $37,643.99.
[16] Ms. Dubrocky noted that a significant number of the refunds related to procedures such as cremation, neutering and other surgical procedures for which refunds are never requested by patient owners. Also, a number of the refunds were processed on days where Mr. Blakeman was not scheduled to work and otherwise would have no business being at the clinic.
[17] Ms. Dubrocky informed the shareholders of her findings. She could not say for certain that the bank account to which all the refunds were going belonged to Mr. Blakeman.
Dr. Jack Hansen
[18] Dr. Hansen is a veterinarian and shareholder of the corporation. He has held shares in the corporation and its predecessors for over 40 years. He has known Mr. Blakeman for over 30 years.
[19] Dr. Hansen testified that in the past Mr. Blakeman had been terminated for theft from the corporation. Mr. Blakeman asked for his job back after about a year. Dr. Hansen said he believed that Mr. Blakeman had reformed himself and could again be trusted with a senior staff position in the corporation where he had the ability to transfer and account for financial transactions.
[20] Dr. Hansen was shown the various business records evidencing the 119 refunds. 86 of these transactions were shown to have been authorized by Dr. Hansen.
[21] Dr. Hansen denied authorizing any of these transactions. He testified he did not disclose his PIN to Mr. Blakeman. He did not give his permission to Mr. Blakeman to use his PIN to process refunds.
Disposition
[22] At the beginning of the hearing, the plaintiff moved for a number of minor amendments to its pleading. It involved clarifying that the corporation was not a general partnership and that six veterinarians are shareholders as opposed to general partners. I made the amendments on the face of the statement of claim in the court file.
[23] The plaintiff also moved to increase the amount of damages sought from $37,249.16 to $37,643.99 in paragraph 1 and 14 of the statement of claim. I permitted those amendments and did so on the face of the pleading.
[24] Based on the evidence presented I find on a balance of probabilities that Patrick Blakeman stole $37,643.99 from the plaintiff corporation between August 24, 2017 and November 9, 2017. I find this because the business records placed in evidence all showed Patrick Blakeman as the author of 119 separate refund transactions that totaled $37,643.99. The records tendered in evidence indicated the refunds were for 119 different patients. Yet all the refunds went into the same bank account. These refunds were not authorized by any shareholders of the corporation. I therefore deduce from this evidence that the bank account was owned or controlled by Mr. Blakeman and that he was not permitted or authorized to make these refunds. Therefore I find that Patrick Blakeman stole and misappropriated $37,643.99 from the plaintiff corporation. Patrick Blakeman is liable to the corporation for the sum of $37,643.99.
[25] Accordingly I find the plaintiff is entitled to an award of damages against Patrick Blakeman for theft in the amount of $37,643.99.
[26] The plaintiff also seeks a finding that Patrick Blakeman obtained the sum of $37,643.99 by fraud. Based on the evidence at trial I so find that Patrick Blakeman committed fraud in failing to inform the shareholders of the corporation that he had, without authority or permission, processed these refund, depositing them to his own bank account and by failing on an ongoing basis from August 24, 2017 to November 9, 2017 to advise any of the shareholders of his actions in paying these refunds to a bank account which he controlled.
[27] The plaintiff seeks a declaration that the amount of damages awarded in this matter shall survive any possible subsequent order of discharge pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act R.S.C. 1985 c. B-3 (the Act).
[28] There was no evidence placed before the court one way or the other as to whether or not Mr. Blakeman has made an assignment in bankruptcy as at the date of trial.
[29] Counsel for the corporation forthrightly advised the court there appear to be conflicting decisions in Ontario relating to this particular head of relief.
[30] On the one hand, in the decision Quan v. Bonnar, 2010 ONSC 89 Rady J. found in a situation where a party had not yet made an assignment in bankruptcy, there was no authority in s. 178(1)(d) of the Act to make such a declaration and in any event the matter was hypothetical.
[31] Alternatively in the more recent decision, Navrab Investments Inc. v. Vaidyn, 2012 ONSC 6844, an action against a terminated employee alleging theft on their part, where the employee had not made an assignment, Moore J. found there was jurisdiction to make such an order upon finding that the employee was acting in a fiduciary capacity.
[32] I am persuaded that it is appropriate to grant this particular aspect of the relief requested by the plaintiff.
[33] It appears the Quan decision was not placed before Moore J. in Navrab. However, it seems to me, that Rady J.'s main concern in Quan in declining to grant the relief requested was that the issue was hypothetical. However Moore J. in Navrab clearly acknowledged that the possibility of bankruptcy of the defendant was a hypothetical proposition at the time of his decision, and nevertheless granted the relief requested. I accept the argument of counsel for the plaintiffs that the decision in Quan also can be distinguished on its facts from this matter.
[34] Quan involved a motion to amend a pleading adding the declaratory relief regarding s. 178(1)(d) of the Act. In this matter, the relief has already been plead and the defendant has not defended and has been noted in default.
[35] At paragraph 12 of Quan, Rady J. noted that no evidence of the nature of the relationship between the plaintiff and the defendant had yet been plead. This was significant as s. 178(1)(d) of the requires a finding that a person is a fiduciary in order to engage this section of the Act.
[36] In my view, there is sufficient evidence in this matter to make a finding that Mr. Blakeman was acting in a fiduciary capacity at all material times. This was a key finding that Moore J. also made in Navrab and was the predicate for him proceeding to grant the relief under s.178(1)(d) of the Act.
[37] I accept the evidence at trial that Mr. Blakeman was employed in a supervisory capacity. I accept Dr. Thompson's evidence that he was particularly trusted by the shareholders to deal with financial matters that was above and beyond that entrusted to regular receptionist employees. In that regard, he had the scope for the exercise of some discretion, namely being able to make refunds to customers without the necessity of having to have them being expressly approved by a shareholder. This was made clear from the evidence of Ms. Dubrocky.
[38] She became aware of the discrepancies in the refunds in August, 2017. She did immediately consult Dr. Hansen, but he took no action. This in my view was evidence of the trust that Dr. Hansen placed in Mr. Blakeman and indicated he was given discretion in financial matters. This situation made more sense in light of Dr. Hansen's evidence about Mr. Blakeman being re-hired. Clearly the corporation gave Mr. Blakeman a "second chance" which speaks to the issue of trust, and the extent to which Mr. Blakeman breached that extension of trust and goodwill. The corporation was vulnerable to Mr. Blakeman because of his ability to affect financial matters by making refunds and I find he exploited that vulnerability to his own personal benefit.
[39] I find based on the evidence that Mr. Blakeman was acting as a fiduciary to the corporate plaintiff for the period from August 2017 until November 2017. In that fiduciary capacity he became liable to the corporation for the sum of $37,643.99.00 arising from his acts of fraud and misappropriation.
[40] I declare that the sum of $37,643.99.00 obtained by Patrick Blakeman from the corporation was obtained by fraud and misappropriation and this debt shall survive any subsequent order of discharge pursuant to s.178(1)(d) of the Act.
[41] The plaintiff has also requested an order for punitive damages. As the corporation has now requested the police to lay a criminal charge against Mr. Blakeman, this creates the possibility that Mr. Blakeman will be facing a separate significant punishment for his actions. As set out by Moore J. in Navrab at paragraph 53:
53 The discretion to award punitive damages is to be exercised carefully for such damages are very much the exception rather than the rule and they are to be awarded only where the misconduct would otherwise be unpunished. These are but two of the eleven points of guidance given us by the Supreme Court of Canada in Whitten and it seems that since Whitten the Court has raised the threshold for conduct that would merit an award for punitive damages.
[42] I adopt these reasons of Moore J. I am not prepared to exercise my discretion to award punitive damages in this matter.
[43] The plaintiff seek costs. Counsel has provided a bill of costs. In the circumstances I am prepared to award partial indemnity costs fixed in the amount of $2,500.00 plus HST plus $887.76 inclusive of HST for disbursements. I find this award of costs is an intrinsic aspect and consequence of the judgment debt arising from Mr. Blakeman's acts of misappropriation. I therefore find it will be a debt that will survive any future discharge Mr. Blakeman obtains from any assignment he may make in bankruptcy pursuant to s.178(1)(d) of the Act.
[44] Accordingly final judgment to go as follows:
Northwestern Veterinary Professional Corporation shall have judgment against Patrick Blakeman in the amount of $37,643.99 for damages arising from the theft, misappropriation and fraud committed by Patrick Blakeman in his fiduciary capacity as an employee of Northwestern Veterinary Professional Corporation;
This court declares Patrick Blakeman obtained the sum of $37,643.99 from Northwestern Veterinary Professional Corporation by way of fraud and misappropriation and this debt shall survive any possible subsequent order of discharge from bankruptcy obtained by Patrick Blakeman pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act R.S.C. 1985 c. B-3;
Northwestern Veterinary Professional Corporation is entitled to pre-judgment interest on the amount set out in paragraph 1 at the rate of .8% calculated from April 1, 2018;
Northwestern Veterinary Professional Corporation is entitled to post-judgment interest on the amount set out in paragraph 1 at the rate of 2% calculated from August 1, 2018;
Patrick Blakeman shall pay Northwestern Veterinary Professional Corporation partial indemnity costs fixed in the amount of $2,500.00 plus HST plus $887.76 inclusive of HST for disbursements. This amount shall survive any possible subsequent order of discharge from bankruptcy obtained by Patrick Blakeman pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act R.S.C. 1985 c. B-3;
The necessity of obtaining the approval as to form and content of this order by Patrick Blakeman is hereby dispensed with;
The statement of claim is hereby amended by the handwritten amendments placed on the claim by Fitzpatrick J. and reflected in the reasons for judgment.
_______"original signed by"
The Hon. Mr. Justice F.B. Fitzpatrick
Released: July 30, 2018
COURT FILE NO.: CV-18-157-00
DATE: 2018-07-30
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Northwestern Veterinary Professional Corporation
Plaintiff
- and -
Patrick Blakeman
Defendant
REASONS FOR JUDGMENT ON UNDEFENDED TRIAL
Fitzpatrick J.
Released: July 30, 2018
/lvp