Court File and Parties

COURT FILE NO.: CV-17-24625 DATE: 2018/08/01

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ROMCAN LIMITED -and- CLAUDIO MARTINI, MARIA MARUSIC, MYRON SHULGAN, CAROL D’AMICO, ROCCO D’AMICO, PAT KEANE, MILLER, CANFIELD, PADDOCK, AND STONE, MOTOR CITY COMMERCIAL CREDIT UNION, THE LAW SOCIETY OF UPPER CANADA, IN ITS CAPACITY AS TRUSTEE OF THE PROFESSIONAL BUSINESS AND TRUST ACCOUNTS OF CLAUDIO MARTINI AND SHULGAN, MARTINI, MARIUSIC LLP

BEFORE: Justice A. K. Mitchell (Case Management Judge)

COUNSEL: R. Thapar, for the Plaintiff G. Tighe, for the Defendant, Claudio Martini H. Strosberg for the Defendant, Myron Shulgan

HEARD: July 26, 2018

Endorsement

Overview

[1] Three motions were returnable in this matter today. Two motions were argued – the defendant, Martini’s motion to compel the attendance of Gheorghe Leferman at an examination as a witness on the defendant, Martini’s pending motion for a further and better affidavit of documents (the “rule 39.03 motion”) and the defendant, Shulgan’s motion to compel the attendance of Mr. Leferman at examination for discovery (the “Shulgan motion”).

[2] Counsel agreed that the defendant, Martini’s motion to compel production of a further and better affidavit of documents from the plaintiff could not proceed pending a decision on the rule 39.03 motion.

Background

[3] In this action, the plaintiff, Romcan Limited, seeks recovery of the sum of $2,246,321.41 (the “Funds”) alleged to have been misappropriated by the defendants, Martini and Marusic. The defendant, Shulgan is alleged to have aided and abetted the misappropriation.

[4] The plaintiff is a former client of the law firm, Shulgan, Martini, Marusic LLP (the “law firm”).

[5] Gheorghe Leferman is the sole officer and director of the corporate plaintiff.

[6] The defendant, Martini represented the plaintiff with respect to various retainers relating to the construction of two retirement homes – one in Kingsville, Ontario and the other in Leamington, Ontario. The retirement homes were sold by the plaintiff in December 2006 and 2.5 million dollars from the sale proceeds (alleged to be in excess of $30 million) were placed in trust pending a resolution of issues between the plaintiff and its bonding company, AXA Pacific Insurance Company (“AXA”).

[7] On December 12, 2006, AXA commenced an action against the plaintiff for damages and the plaintiff counterclaimed against AXA (the “AXA action”). The AXA action was settled in November 2012. Pursuant to the terms of settlement, the sum of $2,746,342.41 (inclusive of the Funds) were paid to the law firm, in trust.

[8] The Funds were disbursed to various persons unrelated to the plaintiff. The Law Society of Ontario commenced an investigation into the conduct of each of the defendants, Martini and Marusic, including the law firm’s distribution of the Funds.

[9] The defendant, Martini defends this action alleging the Funds had been previously assigned to him by the plaintiff. The defendant, Martini alleges the plaintiff was not prepared to remain resident in Canada to pursue the lengthy, costly and risky AXA action and risk facing adverse tax consequences relating to the sale of the retirement homes.

[10] The defendant, Shulgan, continues to practice law in Windsor Ontario. The defendants, Martini and Marusic do not.

[11] On February 5, 2016 the plaintiff commenced this action.

[12] On April 27, 2016, a statement of defence, cross-claim and defence to cross-claim was delivered on behalf of the defendant, Shulgan. On April 28, 2016 the affidavit of documents of the defendant, Shulgan was served.

[13] The pleadings closed on March 27, 2017.

[14] In May 2017, an out-of-town case management judge was appointed.

[15] On October 3, 2017, the defendant, Martini served his affidavit of documents.

[16] On November 17, 2017, the plaintiff served its affidavit of documents.

[17] On December 8, 2017, a case management conference was held and a timetable was established on consent of all parties with respect to documentary production, any motions relating thereto and scheduling of examinations for discovery. The parties agreed and it was endorsed that all discoveries be completed by July 15, 2018.

[18] In February 2018, the plaintiff advised the defendants, Martini, Marusic and the D’Amico’s, that it was not satisfied with their respective affidavit of documents and intended to bring a motion to compel a further and better affidavit of documents from each of them.

[19] Despite best efforts of counsel, the first available date for motions relating to documentary discovery based on counsel and court availability was July 26, 2018.

[20] Pending the return of the motions date, the defendant, Martini served his motion to compel a further and better affidavit of documents from the plaintiff.

[21] On May 28, 2018, counsel for the defendant, Shulgan, served a notice of examination on the plaintiff and the defendants, Martini and Marusic, to attend for examination for discovery on July 23, 2018.

[22] Mr. Leferman, on behalf of the plaintiff, and the defendants, Martini and Marusic, did not attend the examinations as scheduled and certificates of non-attendance were obtained by the defendant, Shulgan.

Analysis

(a) The Rule 39.03 motion

[23] In his motion materials, the defendant Martini seeks further and better documentary production from the plaintiff in the following areas:

(a) all documents relating to the original financing of the Leamington retirement home, including all construction financing documents, loan statements and correspondence;

(b) all documents relating to the construction of the Leamington retirement home, including invoices, payment certificates, correspondence and contracts, and including documents and correspondence relating to the labour and material payment bond and performance bond both before and after a demand was made on the bonds;

(c) all documents relating to the sale of the retirement homes and, specifically, documents showing the distribution of sale proceeds by Romcan;

(d) all documents relating to the holdback [1];

(e) Romcan’s financial statements, banking records and income tax returns for 2006 onward [2];

(f) all documents relating to the search for and/or purchase of a condominium in Panama as well as documentation relating to the purchase of a vehicle and any subsequent sale and/or transfer of the vehicle;

(g) all documentation relating to Mr. Leferman’s and/or Romcan’s dealings with Canada Revenue Agency (“CRA”) in regard to the taxation of the sale proceeds for the Leamington retirement home and the Kingsville retirement home, including any documentation relating to the seizure of funds by CRA, as well as the plaintiff’s and Mr. Lefferman’s personal income tax returns for 2006 and 2007; and

(h) copies of any recordings or transcripts of interviews or meetings between Mr. Leferman and the LSO investigator, as well as any correspondence relating to such interviews or meetings.

[24] On this motion, the defendant Martini seeks to examine Mr. Leferman with regards to the matters giving rise to the further documentary production sought by the defendant, Martini on his pending motion described above.

[25] The plaintiff asks the court to dismiss the motion on the basis the defendants, including Martini, refused to negotiate a discovery plan despite their obligation to do so pursuant to rule 29.1 of the Rules of Civil Procedure (the “Rules”). Plaintiff’s counsel points to an e-mail he sent to opposing counsel on October 12, 2017 proposing a telephone conference between counsel to discuss a draft discovery plan. Counsel for the defendant, Martini opposed the request and refused to negotiate a discovery plan.

[26] Rule 29.1 of the Rules requires the parties to agree to a discovery plan before the earlier of: (a) 60 days after close of pleadings; or (b) attempting to obtain evidence. Pleadings closed in March 2017. No party, including the plaintiff, attempted to negotiate a discovery plan until October 2017, long after the deadline imposed by rule 29.1. By that time, documentary discovery had begun. In particular, the defendant Martini (and the defendant, Shulgan) had served his affidavit of documents and the plaintiff had voiced its concerns with respect to the adequacy of the defendant Martini’s documentary disclosure.

[27] But for Mr. Shulgan, all parties including the plaintiff were not ad idem with respect to the scope of document disclosure. In fact, Mr. Thapar’s suggestion of meeting to discuss a discovery plan was made in the context of the plaintiff’s objection to the adequacy of the defendant Martini’s affidavit of documents. In those circumstances, any attempts to successfully negotiate a discovery plan would likely prove futile. In fact, the endorsement made following the case conference on December 8, 2017 anticipated there would be motions relating to documentary disclosure. No party requested the court’s direction with respect to a discovery plan nor asked the court to impose a discovery plan. It is clear that as of the first case conference in this matter, the parties were resigned to adversarial litigation - consensus was not possible. It appears given the history of the parties’ dealings to date, that the parties and the issues in this action do not lend themselves to cooperative litigation.

[28] The plaintiff also argued that rule 29.2 of the Rules imposes a requirement of proportionality in discovery and having regard to the factors set forth in rule 29.2.03 the defendant, Martini should be denied the relief sought on this motion or at a minimum denied his costs of the motion.

[29] I find that the plaintiff’s argument with respect to proportionality is one best left for argument on the pending motion of the defendant, Martini should it proceed. The rule 39.03 motion is restricted to a consideration of whether or not Mr. Leferman should be produced for examination. Rule 29.2 applies to the scope of any examination.

[30] Rule 39.03(1) of the Rules provides that a person may be examined as a witness for the hearing of a pending motion or application for the purpose of having a transcript of his or her evidence available for use at the hearing. The scope of the examination is limited to the personal knowledge of the witness. [3]

[31] The right to examine under rule 39.03(1) shall be exercised with reasonable diligence. However, the onus on the party seeking to conduct an examination pursuant to rule 39.03(1) is not a high one and it is sufficient to establish on a reasonable evidentiary basis that (i) the examination would be conducted on relevant issues; and (ii) the witness is in a position to offer relevant evidence. The level of relevance need not be shown to be more than a semblance of relevance. [4]

[32] Relevance has been established in this case. The affidavit of Rajini Nathan sworn July 17, 2018 in response to the defendant Martini’s motion for a further and better affidavit of documents contains the hearsay evidence of Mr. Leferman. Mr. Leferman chose to introduce the plaintiff’s evidence indirectly. By doing so he insulated himself from the application of rule 39.02(1) and forced the defendant, Martini to seek to examine him pursuant to rule 39.03. I find it was improper for Mr. Leferman to give evidence on material issues in dispute in this action indirectly. Accordingly, the defendant, Martini as of right, is entitled to examine Mr. Leferman. The issue then becomes the scope of the examination.

[33] I am persuaded by the plaintiff’s submissions that the request of the defendant, Martini for the personal documents of Mr. Leferman is over-reaching. He is not a party. There is no basis to pierce the corporate veil. It is premature to seek Mr. Lefermans’ passport, personal income tax returns, banking and other financial documents. At this juncture, the relevancy of these documents has not been established. Once the evidentiary foundation is laid, a rule 30.10 motion may be brought with personal service on Mr. Leferman as required by that same rule. On the examination, Mr. Leferman may not be requested to produce any personal documents.

[34] Furthermore, I find it is premature to seek to examine Mr. Leferman on his statements contained in Schedule C to the plaintiff’s supplementary affidavit of documents sworn June 22, 2018. Specifically, the defendant, Martini seeks to examine Mr. Leferman with respect to his statement: “Apart from documents provided by Romcan Limited to Mr. Martini, and those disclosed in Affidavit of Documents of Romcan Limited, all other documents were discarded years before the start of this litigation.” (Emphasis added) This statement has been made with respect to the following categories of documents:

1. original construction financing documents relating to the Leamington retirement home;
2. construction/bond documents relating to the Kingsville retirement home; and
3. sale documents relating to the sale of the Leamington home in the Kingsville home.

[35] Questions relating to when, how, by whom and why documents were discarded or destroyed by the plaintiff are more appropriate to be asked of Mr. Leferman on his examination for discovery. The plaintiff has deposed these documents no longer exist and cannot be produced. Therefore, these documents cannot be the subject of a production order.

[36] In summary, the defendant Martini succeeds on his motion because Mr. Leferman chose to hide his evidence in the information and belief of Ms. Nathan, a legal assistant to the plaintiff’s counsel. By doing so, he hoped to shield himself from cross-examination on evidence related to matters entirely within his knowledge and of which Ms. Nathan has absolutely no knowledge. These matters – the Panama investment and Mr. Leferman’s place of domicile - are material issues in dispute and lie at the heart of the defendant Martini’s defence of these claims. Mr. Leferman cannot respond to the motion with evidence of which only he has knowledge without subjecting himself to cross-examination on that evidence.

(b) The Shulgan Motion

[37] The plaintiff is satisfied with the contents of the affidavit of documents served by the defendant, Shulgan, more than two years ago.

[38] As earlier noted in these reasons, the defendant, Shulgan continues to practice in Windsor. Understandably, he is eager to clear his name and escape the stigma associated with the allegations made against him in this action. He has waited more than two years to do so and is not prepared to wait any longer. He asks that Mr. Leferman be produced for examination for discovery for the sole purpose of answering the claims made by the plaintiff against him and no more. Following discovery, he intends to move for summary judgment on the claims made against him personally. The defendant, Shulgan, is prepared to similarly make himself available for examination for discovery by the plaintiff.

[39] In response, the plaintiff argues that Mr. Leferman should not be subjected to being examined for discovery more than once. It is acknowledged by all parties that if Mr. Shulgan is permitted to examine the plaintiff now, Mr. Leferman will necessarily have to be made available again for discovery by the balance of the defendants at a later time following proper documentary discovery.

[40] In addition, the plaintiff argues that the evidence upon which its claims against Mr. Shulgan rest is likely to be contained in the documents and transcripts in the possession of the LSO and therefore it would be premature (and prejudicial) to allow Mr. Shulgan to examine Mr. Leferman before disclosure by the LSO is complete.

[41] The time is nigh for the plaintiff to provide its evidence to support its claims against Mr. Shulgan. Whether the defendant, Shulgan will succeed on his anticipated motion for summary judgment in light of the outstanding disclosure by the LSO, is an issue to be a decided at a later date.

[42] Mr. Shulgan has complied with all preconditions under the Rules entitling him to conduct an examination for discovery of the plaintiff. There are no outstanding motions between the plaintiff and the defendant, Shulgan. Mr. Shulgan should not be forced to continue to live and practice law in Windsor under the dark cloud of this litigation if the evidence does not exist to support the plaintiff’s claims against him. An examination for discovery of Mr. Leferman will illuminate the evidence (or lack thereof) in support of the plaintiff’s claims. In all of the circumstances, the benefits which will accrue to the defendant, Shulgan by permitting him to examine the plaintiff for discovery now in advance of the other defendants outweighs the burden on Mr. Leferman being subjected to examination more than once. I am assured by Mr. Strosberg that the examination will take no more than a half day.

Disposition

[43] The defendant, Martini’s motion to compel the plaintiff to serve a further and better affidavit of documents is adjourned sine die returnable before me on a date to be arranged with the trial coordinator (in consultation with other counsel), if necessary.

[44] With respect to the rule 39.03 motion, order to go as follows:

(a) Gheorghe Leferman, as a representative of the corporate plaintiff, shall be produced for examination by counsel for the defendant, Martini and the examination shall be limited in scope to the following areas of questioning:

(i) the information and belief of Ms. Nathan contained in paragraphs 74 and 79 of her affidavit sworn July 17, 2018;

(ii) the parties to whom distribution/disbursement of the sale proceeds from the sale of the two retirement homes in December 2006 was made; and

(iii) the particulars surrounding the steps taken by the plaintiff to research/investigate/pursue investment opportunities in Panama.

(b) the examination of Mr. Leferman shall be conducted on or before August 31, 2018 at a location within the jurisdiction in which Mr. Leferman resides or such other location as the parties may agree, on 7 days’ written notice provided jointly by the defendants, Martini and Shulgan, and the cost of the examination shall be borne by the defendant, Martini.

[45] With respect to the Shulgan motion, order to go as follows:

(a) Gheorghe Leferman, as a representative of the corporate plaintiff, shall be produced for examination for discovery by counsel for the defendant, Shulgan, only, and the examination shall be limited in scope to the claims advanced against Mr. Shulgan in the statement of claim and the defence and cross-claims advanced by Mr. Shulgan in his statement of defence and cross-claim;

(b) Immediately following the examination of Mr. Leferman, Myron Shulgan shall be produced for examination by counsel for the plaintiff, only, and the examination shall be limited in scope to the claims advanced against Mr. Shulgan in the statement of claim and the defence and cross-claims advanced by Mr. Shulgan in his statement of defence and cross-claim;

(c) The examinations in (a) and (b) shall proceed immediately following the examination of Mr. Leferman on the rule 39.03 motion;

(d) The examinations for discovery of Mr. Leferman and Mr. Shulgan shall be conducted on or before August 31, 2018 at a location within the jurisdiction in which Mr. Leferman resides or such other location as the parties may agree, on 7 days’ written notice jointly provided by the defendants, Martini and Shulgan in connection with the rule 39.03 motion.

Costs

[46] With respect to the rule 39.03 motion, there was divided success and my preliminary view is that each party should bear its respective costs. The plaintiff successfully reduced the areas of examination from the broad scope of examination originally sought by the defendant, Martini. The plaintiff has undertaken to seek production of the entire file relating to the sale of the retirement homes from the solicitor having carriage of that sale transaction. The plaintiff has also undertaken to requisition the banking records from the plaintiff’s banking institution(s) for the period 2006 – onward so as to allow the defendant, Martini to trace the distribution of sale proceeds. Documents produced as a consequence of these undertakings will, hopefully, negate the necessity of the defendant, Martini pursuing his motion for a further and better affidavit of documents.

[47] However, if an agreement on that basis cannot be reached, the defendant Martini shall serve and file brief written submissions within 5 days and the plaintiff shall serve and file brief responding submissions within 5 days thereafter. Any reply submissions shall be served and filed 5 days thereafter.

[48] With respect to the Shulgan motion, Mr. Shulgan was entirely successful and is entitled to his costs of the motion. He seeks $5,000, inclusive of disbursements and HST. This amount appears reasonable. However, if the parties cannot agree on the quantum of fees to which Mr. Shulgan is entitled, the defendant Shulgan may serve and file brief written submissions within 5 days and the plaintiff may serve and file brief responding submissions within 5 days thereafter. Any reply submissions shall be served and filed 5 days thereafter.

“Justice A. K. Mitchell” Justice A. K. Mitchell

DATED August 1, 2018

[1] The “holdback” file was produced prior to the return of the motion. [2] The financial statements and tax returns of Romcan were produced prior to the return of the motion. [3] Magnotta Winery Corporation v. The Alcohol and Gaming Commission of Ontario, 2016 ONSC 3174 at para. 9; Canwest MediaWorks Inc. v. Canada Attorney General, 2007 ONCA 567 at para. 12; and Jackson v. Toronto Police Association, 2008 ONSC 68152 at paras.9 and 11. [4] Manulife Securities International Ltd. v. Societe Generale, 2008 ONSC 13367 at para. 14.