OSHAWA COURT FILE NO.: CV-18-1422 DATE: 20180914 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Dino Colozza Applicant – and – Ralph Di Pietro and Lancaster Custom Cabinets & Closets Inc. Respondents
Counsel: Adam Grossi, for the Applicant Daniel Camenzuli, for the Respondents
HEARD: August 24, 2018
REASONS FOR JUDGMENT
CHARNEY J.:
Introduction
[ 1 ] This application involves a dispute over personal property worth between $8,000 and $10,000 [1]. Distilled to its essential elements, the real dispute between the parties is whether the property in question – two software keys required to operate a computer program – is in good working order. Neither party knows the answer to this question.
[ 2 ] The applicant estimates that his legal costs on a substantial indemnity basis are $14,000. The respondent estimates that his legal costs on a substantial indemnity basis are $8,600.
[ 3 ] Either way, the combined costs to the parties far outweigh the value of the property in question.
[ 4 ] How did this case get to Superior Court?
The Application
[ 5 ] The applicant, Dino Colozzo (Colozzo) brings this application for an order that $25,000 held in trust by his solicitors, Devry Smith Frank LLP, in relation to the sale of shares of the respondent corporation, Lancaster Custom Cabinets & Closets Inc. (Lancaster Cabinets), be released to the applicant.
[ 6 ] The applicant takes the position that there is no basis in the agreement between the parties for the respondent, Ralph Di Pietro (Di Pietro), to refuse to direct Devry Smith Frank LLP to release those funds, and the funds must be released regardless of whether the software keys are in good working order.
[ 7 ] The respondent takes the position that the delivery of the software keys in good working order was a term of their agreement, and he may direct that $25,000 be held back until he can confirm that the software keys work.
[ 8 ] To be clear, the applicant is prepared to deliver the software keys to the respondent, but he does not trust the respondent to assess the working condition of the keys. For his part, the respondent does not trust that the applicant will deliver the software keys in good working order, and will not agree to the release of the $25,000 until he determines whether the software keys work. And so the parties are at an impasse.
[ 9 ] I would have thought that there might be some way to have a neutral third party assess the condition of the software keys and perhaps avoid this litigation, but here we are.
Facts
[ 10 ] Lancaster Cabinets was incorporated in 2008. At the time of the incorporation, the respondent Di Pietro was the sole officer and director of Lancaster Cabinets.
[ 11 ] In February, 2014, Colozzo entered into a Share Purchase Agreement whereby Colozzo purchased 40 shares of Lancaster Cabinets, and Di Pietro held 60 shares.
[ 12 ] On June 5, 2014, Colozzo and Di Pietro entered into a Unanimous Shareholder Agreement that contained a Shot-gun Buy/Sell provision, which gave either shareholder (the offeror) the right to make an offer to the other shareholder (the offeree) to purchase all of the offeree’s shares.
[ 13 ] In early 2018 the working relationship between Di Pietro and Colozzo soured, and there was considerable animosity between them.
[ 14 ] On March 22, 2018, Di Pietro offered to purchase Colozzo’s 40 shares of Lancaster Cabinets for an aggregate price of $200,000. The offer provided:
To purchase from you, as Offeree, all the shares of the capital stock of Lancaster Custom Cabinet & Closets Inc., owned by you, being forty (40) Common shares, at the price of $5,000.00 per share.
[ 15 ] On April 2, 2018, Colozzo’s lawyer, Adam Grossi, emailed Di Pietro’s lawyer, enclosing the executed buy-sell agreement and accepting Di Pietro’s offer to purchase Colozzo’s shares.
[ 16 ] The April 2, 2018 email from Colozzo’s lawyer stated:
I am copying Jim Proskurniak [Mr. Grossi’s colleague] herein in the event that any further items need to be addressed concerning the corporate transaction itself.
[ 17 ] A series of emails followed. On April 4, 2018, counsel for Colozzo emailed counsel for Di Pietro stating:
Once the transaction is closed and completed, my client will vacate the premises and return the necessary and appropriate items.
[ 18 ] Counsel for Di Pietro responded on April 5, 2018:
In light of the relationship between our respective clients, it may be best for your client to refrain from attending at the business premises in order to avoid any conflicts and we can deal with the return of corporate items that are in your client’s possession between our offices.
[ 19 ] Counsel for Colozzo replied the same day:
We aren’t opposed to that, however this isn’t finalized at the moment. Until it is, the clients should avoid each other and not take any steps that they aren’t entitled to take.
[ 20 ] On April 6, 2018, counsel for Di Pietro wrote to counsel for Colozzo to advise that Di Pietro had provided him with a list of items that he expected Colozzo to return before the closing of the transaction, although he noted that the “return of any physical items can be completed between our offices if that is easier”. The property listed included three cell phones with “SIM card intact and phone in working order” and “3 Planit Keys for Software (to be verified by my software engineer)”.
[ 21 ] Counsel for Colozzo responded the same day to advise that Colozzo agreed to return the cell phones with the SIM cards, and also agreed to return two of the Planit Keys, noting that the third key was in the possession of another employee who is not involved in this litigation. The agreement was indicated by comments beside the earlier email sent by counsel for Di Pietro. Thus, the email looked like this:
3 Planit Keys for Software (to be verified by my software engineer) - agreed. Dino [Colozzo] has his and Beverley’s. Dino does not have Rabbia’s. That is in her possession.
[ 22 ] On April 18, 2018 counsel for Di Pietro delivered a “Closing Agenda” listing 18 items for the closing. Item 18 included “three cell phones with SIM cards and chargers (wall and car chargers)” and “Planit keys for software (Dino’s and Beverley’s)”.
[ 23 ] On April 18, 2018 Colozzo’s lawyer wrote to Di Pietro’s lawyer regarding final arrangements for the closing, stating:
We will, of course, provide the usual escrow undertaking not to disburse the funds until we have your written acknowledgment that the transaction is closed and the escrow is lifted.
[ 24 ] The closing was scheduled for April 20, 2018. On that date counsel for Di Pietro wired $195,000 to Devry Smith Frank LLP (the $5,000 deduction from the purchase price was the result of adjustments agreed to by the parties and is not relevant to this application). The money was to be held in trust until the closing was completed.
[ 25 ] On April 20, 2018, counsel for Colozzo emailed counsel for Di Pietro acknowledging receipt of the purchase price funds in their trust account and attaching a series of documents “delivered to you in escrow pending your confirmation of closing”. The email included images of items delivered by Colozzo and now in the possession of Devry Smith Frank LLP including “Four cell phones with SIM cards inside each phone” and “Planit keys (x2) (attached to the key chain)”. Devry Smith Frank LLP requested Di Pietro’s counsel to “confirm that we are now closed, and that your documents and funds are thereby released”.
[ 26 ] Counsel for Di Pietro responded the same date, stating:
The documents and pictures of items being returned appear to be in order. My client has expressed concern with the release of the funds prior to his receipt of the Planit keys and cell phones and his opportunity to confirm that same are in good working order. His concern stems from the fact that the Planit keys, in particular, are expensive items ($4,000-$5,000 each) to replace so we can confirm, based on your undertaking to deliver original signed documents and the physical items being returned, that we are closed and that our documents and funds can be released save and except for $25,000 of the closing funds which we require that you retain in your trust account until our client has had an opportunity to verify that the Planit keys and phones are in working and usable condition. My client has advised me that he will be able to verify this quickly once the items are delivered to us so if we receive everything by courier on Monday or Tuesday morning then I anticipate my client being able to confirm this prior to the end of that day or by the next morning.
[ 27 ] Counsel for Colozzo responded that same evening stating:
Your client’s last minute demand as communicated in your latest e-mail has no legal basis, is nonsensical and is completely unacceptable. We therefore insist that you immediately confirm the completion of the transaction and the full release from escrow of …the $195,000 held in our trust account. We will then arrange for the…items in our possession…to be delivered to your office on Monday.
[ 28 ] Devry Smith Frank LLP released $170,000 from escrow, and brought this application for the release of the balance of $25,000 still held in escrow.
[ 29 ] Devry Smith Frank LLP still holds the closing documents and the Lancaster property, including the cell phones and Planit keys.
[ 30 ] There is no dispute that this application may be brought pursuant to Rule 14.05 of Rules of Civil Procedure, R.R.O. 1990, c. 194.
Analysis
Motion to move the application from Oshawa to Newmarket
[ 31 ] The respondent brought a motion to move this application from Oshawa to Newmarket. The respondent argues that there is not even a tenuous relationship between the parties, their respective counsel and the Oshawa Court. Both the applicant and the respondent live in York Region. The business, Lancaster Cabinets, operates its business out of York Region. The respondent’s counsel are located in York Region, and the applicant’s lawyer’s main office is located in Toronto.
[ 32 ] Counsel for the respondent argues that it is tremendously inconvenient and significantly more costly for the respondent to attend the Oshawa Court to speak to the application, and the application should have been commenced in Newmarket. He argues that counsel for the applicant commenced the application in Oshawa only because he had two other matters scheduled in Oshawa on the original return date of June 29, 2018.
[ 33 ] Pursuant to Rule 13.1.01, unless a statute or rule requires a proceeding to be commenced in a particular county, the proceeding may be commenced at any court office in the county named in the originating process. Pursuant to Rule 13.1.02(2), the Court may, on any party’s motion, make an order to transfer the proceeding to a county other than the one in which it was commenced if a transfer is in the interest of justice, having regard to:
(i) where a substantial part of the events or omissions that gave rise to the claim occurred, (ii) where a substantial part of the damages were sustained, (iii) where the subject-matter of the proceeding is or was located, (iv) any local community’s interest in the subject-matter of the proceeding, (v) the convenience of the parties, the witnesses and the court, (vi) whether there are counterclaims, crossclaims, or third or subsequent party claims, (vii) any advantages or disadvantages of a particular place with respect to securing the just, most expeditious and least expensive determination of the proceeding on its merits, (viii) whether judges and court facilities are available at the other county, and (ix) any other relevant matter.
[ 34 ] Many of these considerations are more relevant to a lengthy trial involving witnesses than to a one-hour application proceeding on the basis of affidavit evidence.
[ 35 ] The Consolidated Provincial Practice Direction includes a specific provision relating to “Motions to Transfer a Civil Proceeding in the Central East, Central West, Central South and Toronto Regions under Rule 13.1.02 of the Rules of Civil Procedure”. Paragraph 49 of that practice direction provides that a motion to transfer a proceeding to another county “should be brought at the court location to which the moving party seeks to have the proceeding transferred”. Paragraph 51 of the Practice Direction provides that motions to transfer shall be brought in writing, and will be heard by the Regional Senior Justice or her designate. The respondent’s motion to transfer did not comply with that practice direction, since the motion was brought in Oshawa rather than Newmarket and on the return date of the application rather than in writing in advance of the application.
[ 36 ] In any event, I dismissed the motion to transfer at the outset of the hearing on the simple basis that both counsel were present in Oshawa and had filed application records in support of their position on the application. Given the low monetary value of the property at issue in this case, it is not in the interest of justice to adjourn the proceeding and have counsel reattend at some later date in Newmarket. However inconvenient and costly it was to have counsel come to Oshawa, they are already here. Had counsel complied with the Practice Direction, and brought the motion to transfer in writing in advance of the scheduled date for the application, there might have been a different result.
Application Merits
Position of the Parties
[ 37 ] The applicant argues that the terms of the share transfer were set out in the March 22, 2018 offer to purchase forwarded by Di Pietro and accepted by Colozzo on April 2, 2018. The terms of the offer to purchase say nothing about the transfer of corporate property. The sale price - $200,000 minus adjustments – represented the value of the shares transferred, and not the incidental corporate property that had to be exchanged. As such, Di Pietro had no legal basis for imposing a “holdback” on funds paid for the shares subject to his determination that the Planit software keys were in working condition.
[ 38 ] Colozzo states that he has no issue returning the Planit software keys and cell phones. He argues, however, that the agreement did not contemplate that he would guarantee that the items would be returned in working order, and no representations or warranties were provided with respect to the same. These conditions were unilaterally imposed by Di Pietro at the last minute.
[ 39 ] Di Pietro argues that the buy/sell offer was never meant to incorporate all of the terms of the agreement, and that the correspondence between counsel following the April 2, 2018 acceptance of the offer to purchase confirmed that the return of certain corporate property was part of the agreement and was to be completed before closing. He further argues that it was an implied term that any property that was to be returned was required to be in good working order.
Analysis
[ 40 ] The dispute between the parties raises two issues. First, did the agreement between the parties include an express or implied term that any property that was to be returned by the applicant to the respondent was required to be in good working order?
[ 41 ] The second issue, assuming an affirmative answer to the first question, did the agreement authorize the respondent to require the applicant’s counsel to hold back a portion of money paid for the sale of the shares to cover any possible repair or replacement of the property returned.
[ 42 ] An affirmative answer to the first question does not necessarily result in an affirmative action to the second question.
[ 43 ] The answer to the first question can be resolved by reference to the April 6, 2018, email from counsel for Colozzo to counsel for Di Pietro. In that email, counsel confirms that Colozzo has agreed to return, before the closing of the transaction, the cell phones with the SIM cards and two of the Planit software keys. The specific wording agreed to was: “Planit Keys for Software (to be verified by my software engineer)”.
[ 44 ] Neither party has proposed an interpretation of the words “to be verified by my software engineer”. They could mean that the software engineer is to verify that they are the correct software keys, or they could mean that the software engineer is to verify that the software keys are in working order. Or they could mean something else. In the absence of any evidence or submissions by counsel on this point, I am not prepared to hazard a guess.
[ 45 ] Whatever those words mean, that was the agreement between the parties with respect to the return of the Planit keys.
[ 46 ] I am prepared to assume, for the purposes of this analysis, that the words “to be verified by my software engineer” meant that the software keys were to be returned in working order. I am prepared to make the same assumption with respect to the cell phones.
[ 47 ] Even assuming that the return of the cell phones and Planit software keys in working order was either an express or implied term of the agreement, I reject the position that the respondent could unilaterally impose a “holdback” of any amount – let alone an amount more than two or three times the value of the property – to ensure that the property was returned in working order. There is no term of the agreement that would permit the respondent to impose such a holdback, and, in my view, it was not contemplated by the terms of the original share transfer agreement or any of the subsequent correspondence between counsel.
[ 48 ] I agree with counsel for the applicant that the sum of $195,000 was intended for the purchase of the applicant’s shares in Lancaster Cabinets, and that, as an ancillary matter, the applicant also agreed to return certain property belonging to the respondent corporation before closing. Even assuming that the respondent was entitled to have the property returned in working order, the remedy for a breach of that condition was not to impose a unilateral holdback on the purchase price of the shares, but to bring a separate action for damages (presumably in Small Claims Court) for breach of that term of the ancillary agreement.
Conclusion
[ 49 ] Based on the foregoing, the Court orders that the remaining funds held in trust at Devry Smith Frank LLP in relation to the sale of shares of the respondent corporation, Lancaster Custom Cabinets & Closets Inc., be released to the applicant after the applicant has returned the corporation’s property listed in para. 3 of the email from James Proskurniak to John Quaglietta, dated Friday, April 20, 2018 at 2:27 p.m.
[ 50 ] If the parties cannot agree on costs, the applicant may serve and file written submissions within 30 days of the release of this decision. Such submissions will be limited to 3 pages plus costs outline and any offers to settle. The respondent shall serve and file reply submissions on the same terms within 20 days thereafter.
Justice R.E. Charney Released: September 14, 2018
Footnotes
[1] This estimate is derived from correspondence from counsel for the respondent (see para. 26 below). There is no evidence on the record before me regarding the value of the property, and although I assume this amount for the purposes of this motion, no factual finding is made in this regard.