Court File and Parties

COURT FILE NO.: CV-17-574859 DATE: 20180919 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Anthony Kerwin and Wayne Deserres Plaintiffs – and – Lorenzo D’Urso, Robert Leduc, Peter Fuller, William Trotter and DUR-A-BUS Coach Builders 2016 Inc. Defendants

AND B E T W E E N:

Lorenzo D’Urso Plaintiff by Counterclaim – and – Anthony Kerwin, Wayne Deserres, Anthony Donald Kerwin and Frank Hieblinger Defendants by Counterclaim

Counsel: Charles C. Chang for the Defendant Mr. D’Urso Justin Heimpel for the Defendant Mr. Hieblinger

HEARD: July 31, 2018

Koehnen J.

[1] This is a motion for summary judgment by Frank Hieblinger to dismiss a counterclaim that the defendant Lorenzo D’Urso has brought against him.

[2] Mr. D’Urso submits the motion should be dismissed because it is one for partial summary judgment. Even if I dismiss the counterclaim against Mr. Hieblinger, the main action and the counterclaim would continue between the plaintiffs and the defendants.

[3] This is one of those rare cases where partial summary judgment is appropriate. The motion would dispose of the action against Mr. Hieblinger in its entirety. There is no danger of inconsistent fact finding at trial because the remaining defendants to the counterclaim do not claim over against Mr. Hieblinger. Mr. D’Urso’s admissions on cross-examination in effect negate his counterclaim against Mr. Hieblinger. In the circumstances of this case, none of the policy concerns that the Court of Appeal raised in Butera v. Chown, Cairns LLP, 2017 ONCA 783 about granting motions for partial summary judgment apply.

I. BACKGROUND TO THE ACTION

[4] The main action arises out of a shareholder dispute between the plaintiffs, Anthony Kerwin and Wayne Deserres and the defendant Mr. D’Urso. All were shareholders of Dur-A-Bus Coach Builders 2016 Inc.. The three additional defendants apart from Mr. D’Urso are individuals related to Dur-A-Bus who allegedly induced the plaintiffs to invest in it.

[5] Mr. D’Urso had owned and managed a predecessor corporation to Dur-A-Bus. The predecessor corporation engaged in the same business as Dur-A-Bus but ran into financial difficulties. To escape from at least some of those difficulties, Mr. D’Urso and the plaintiffs formed Dur-A-Bus in August 2016, injected fresh capital, transferred the business of the predecessor corporation to Dur-A-Bus and transferred much but not all of the predecessor’s historic debt to Dur-A-Bus. Mr. D’Urso became the majority shareholder; the plaintiffs became minority shareholders and Messrs. D’Urso and Kerwin became the directors, officers and signing officers of Dur-A-Bus.

[6] On October 3, 2016, Dur-A-Bus hired Mr. Hieblinger as its VP Finance with an annual salary of $135,000. He had been recruited by Mr. Kerwin whom he knew from previous employment.

[7] Like its predecessor, Dur-A-Bus designed, built, and sold luxury van-style buses made mostly from Mercedes-Benz van chassis. The buses were sold through another of Mr. D’Urso’s companies, City View Bus Sales & Services Ltd.

[8] Like its predecessor corporation, Dur-A-Bus encountered serious financial problems. On April 24, 2017 Mr. Kerwin directed all employees, including Mr. Hieblinger, to leave work and not return. Dur-A-Bus ceased operations in May 2017 after which Mr. D’Urso petitioned it into bankruptcy.

[9] In the main action, the plaintiffs claim damages of $10 million against the defendants for oppression.

[10] The defendants defended. In addition, Mr. D’Urso responded with his own $10 million counter-claim against the plaintiffs for oppression and other breaches of the Ontario Business Corporations Act.

[11] When initiating his counterclaim, Mr. D’Urso also joined Mr. Hieblinger as a defendant to the counterclaim. Until then Mr. Hieblinger had not been a party to the action.

[12] The counter-claim alleges that the plaintiffs and Mr. Hieblinger took over, mismanaged, completely destroyed and unilaterally shut down Dur-A-Bus.

II. THE ALLEGATIONS AND EVIDENCE AGAINST MR. HIEBLINGER

[13] The allegations against Mr. Hieblinger follow a common pattern. The defence and counterclaim make allegations against the plaintiffs and then occasionally add Mr. Hieblinger as one of the alleged wrongdoers, almost as an afterthought.

[14] By way of example, paragraph 21 of the defence and counterclaim sets out the specifics of the plaintiffs’ alleged gross mismanagement in subparagraphs (a) to (p). Paragraph 22 of the defence and counterclaim then refers to “the plaintiffs’ and Hieblinger’s said mismanagement…” The difficulty is that the “said mismanagement” refers to the allegations in paragraph 21. Those allegations are against the plaintiffs, not against Mr. Hieblinger. That problem is repeated elsewhere in the defence and counterclaim.

[15] Mr. D’Urso’s affidavit is slightly more carefully drafted but simply alleges that the “Plaintiffs and Mr. Hieblinger” engaged in certain conduct without ever breaking down allegations against Mr. Hieblinger.

[16] On cross-examination it appears that Mr. D’Urso admitted he had no evidence that Mr. Hieblinger was involved in any of the impugned conduct.

[17] Before turning to Mr. D’Urso’s allegations and admissions, it will be helpful to outline Mr. Hieblinger’s authority within Dur-A-Bus.

[18] While Mr. Hieblinger prepared financial statements, forecasts, accounting documents, managed payroll, contacted vendors about Dur-A-Bus’s historic debt and negotiated a new credit agreement with Mercedes-Benz, his role in these tasks was to execute tasks he had been assigned as opposed to exercising decision-making authority. Mr. Hieblinger was not a director or shareholder of Dur-A-Bus and was not listed as an officer in its corporate filings. He had no signing authority over Dur-A-Bus’s accounts or cheques, had no authority to hire or fire employees, had no responsibility for Dur-A-Bus’s operations, had no responsibility for fulfilling customer orders and did not even have authority to approve employee expenses.

[19] Although Mr. D’Urso’s affidavit on this motion alleges that Messrs. Kerwin, Deserres and Hieblinger “took over a business that I had started and put millions of dollars into and, in 8 months, completely destroyed it, unilaterally shut it down, and closed its doors”, he admitted during cross-examination, that Mr. Hieblinger did not in fact take over the business, unilaterally shut it down, or have anything to do with its closing.

[20] Although Mr. D’Urso alleged in his affidavit that the plaintiffs and Mr. Hieblinger had so poorly mismanaged the business that customers cancelled their agreements, he admitted during cross-examination that the issues with the customers arose before Mr. Hieblinger was hired, that Mr. Hieblinger had nothing to do with those issues and that Mr. Hieblinger had not engaged in any mismanagement before the customers cancelled their agreements.

[21] Although Mr. D’Urso alleges in his affidavit that the plaintiffs and Mr. Hieblinger had spent $1,300,000 in Dur-A-Bus funds by the end of December 2016, he admitted on cross-examination that Mr. Hieblinger had not, in fact, expended any of that money.

[22] Although Mr. D’Urso alleges that he told the plaintiffs and Hieblinger it was their responsibility to fix the financial “mess” in which Dur-A-Bus found itself, he admitted during cross-examination that this instruction was delivered in emails that were delivered to the plaintiffs, but not to Mr. Hieblinger.

[23] Although Mr. D’Urso alleges that the plaintiffs and Mr. Hieblinger gave themselves exorbitant salaries, during cross examination, he admitted that Mr. Hieblinger did not give himself his salary, did not give salaries to the plaintiffs and that Mr. Hieblinger’s salary was not exorbitant.

[24] Although Mr. D’Urso alleges that the plaintiffs and Mr. Hieblinger reimbursed themselves for excessive and otherwise improper expenses, he admitted during cross-examination that Mr. Hieblinger’s expenses were not excessive or improper and that Mr. Hieblinger had nothing to do with the reimbursement of the plaintiffs’ expenses.

[25] Although Mr. D’Urso alleges that Mr. Hieblinger failed to carry out two specific objectives that Mr. D’Urso set in a meeting that Mr. Hieblinger attended in March 2017, Mr. D’Urso led no evidence to suggest that the fortunes of the company would have been different had those objectives been implemented.

[26] The first objective was to cancel and renegotiate all postdated cheques that Dur-A-Bus had given non-essential suppliers. The record before me shows that Mr. Hieblinger told Messrs. Kerwin and D’Urso what payments were outstanding and sought direction about how to deal with them. Mr. Hieblinger had no authority to renegotiate those payments without specific direction from Mr. Kerwin or Mr. D’Urso. Mr. Hieblinger carried out the directive after receiving specific instructions from Mr. Kerwin.

[27] The second objective was to remove Messrs. Kerwin and Deserres from the payroll and to characterize future payments to them as shareholder advances instead of salary. Respondent’s counsel admitted in argument that the purpose of doing so was to save money by paying Messrs. Kerwin and Deserres their old net salary but not to remit withholding tax to CRA. Mr. Hieblinger expressed a concern that this was illegal and refused to do so.

[28] Mr. Hieblinger’s refusal to do so was known to Mr. D’Urso. In early April 2017 Mr. D’Urso received an email from the defendant Peter Fuller indicating that if the payroll suggestion had been implemented the company would have saved $7,500 in the month of March. Assuming a similar saving would have been achieved for April before Mr. Hieblinger and other employees were let go, this would have resulted in a total saving of approximately $15,000. There is no evidence that this saving would have changed the company’s fortunes.

[29] On the contrary, Mr. D’Urso was told he needed to inject between $430,000 and $730,000 into the business to save it. The business failed when he refused to do so. Saving $15,000 would have made no difference to the survival of the company that needed a minimum of $430,000.

[30] Moreover, the typical way for a controlling shareholder of a private corporation to deal with an employee who refuses to follow instructions is to terminate the employee and/or have someone else carry out the instruction, not to accept the employee’s refusal but then sue the employee for the $10 million.

[31] Mr. D’Urso complains that Mr. Hieblinger negligently prepared a cash flow analysis that showed the company needed a cash injection of $733,000. The analysis contained an arithmetical error that overstated the company’s financial needs by approximately $300,000. Although there is some dispute about whether and to what extent Mr. Hieblinger was involved in preparing the cash flow statement, it remains a non-issue. The error was discovered almost immediately and corrected. No one acted on the erroneous cash flow statement as a result of which it cannot support a claim against Mr. Hieblinger.

[32] Finally, Mr. D’Urso complains that Mr. Hieblinger did not return his company laptop until sometime between March and May 2018 when he returned it to the company’s receiver. Mr. D’Urso claims the failure to return the computer caused damage because it deprived Mr. D’Urso of the ability to review its contents to see if the company’s shut down could have been avoided.

[33] Although Mr. D’Urso confirmed receipt of the computer with the receiver, he has not asked to review its contents.

II. THE LAW ON SUMMARY JUDGMENT

[34] The principles relating to summary judgment are well-known. The court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence: Rules of Civil Procedure, Rule 20.04 (2)(a). A respondent to a motion for summary judgment cannot rest solely on the allegations in its pleadings. It must produce evidence of specific facts to demonstrate that there is a genuine issue which requires a trial to resolve. The respondent must put its best foot forward or risk losing: Rules of Civil Procedure, Rule 20.02(2); Hryniak v. Mauldin, 2014 SCC 7 paras 34, 36.

[35] Mr. D’Urso has not met this test. As a result, on the record before me I am able to make the necessary findings of fact, apply the law to the facts and arrive at a just result that is proportionate, expeditious and less expensive than proceeding to trial: Hryniak, at para. 49.

[36] I am satisfied that based on the record before me there is no issue with respect to Mr. Hieblinger that requires a trial to resolve. I come to that conclusion without having to exercise the powers under rule 20.04 (2.1) because the respondent has failed to create any issues that require me to weigh evidence or evaluate the credibility. I base my findings on Mr. D’Urso’s admissions about the allegations he has made and the portions of Mr. Hieblinger’s evidence that are undisputed.

[37] The only issue that Mr. D’Urso pressed heavily to resist the motion during oral argument is that the motion is one for partial summary judgment.

[38] The cases on which Mr. D’Urso relies in support of the proposition that I should not grant partial summary judgment are either inapplicable or distinguishable.

(a) Policy Concerns in Butera Do Not Apply

[39] The leading case on partial summary judgment is the decision of the Ontario Court of Appeal in Butera where the court reserved partial summary judgment motions to the “clearest of cases where the issue on which judgment is sought is clearly severable from the balance of the case”: at para 26.

[40] This is such a case. The question on this motion is whether the respondent has raised any issue against Mr. Hieblinger that requires a trial to resolve. Not only has Mr. D’Urso failed to raise an issue that requires a trial to resolve, Mr. D’Urso has failed to raise any real issue against Mr. Hieblinger at all.

[41] In Butera, the Court of Appeal raised five policy concerns about partial summary judgment. None apply here.

[42] The first concern is the possibility that the result at trial may conflict with the result on the summary judgment motion. That concern does not arise here because the other defendants to the counterclaim do not raise any crossclaim against Mr. Hieblinger.

[43] The second concern is delay. Delay does not arise here. Affidavits of documents have already been exchanged. The parties agreed that the cross examinations would serve as both cross examinations and examinations for discovery. Neither the plaintiffs nor the defendants have been precluded from listing this matter for trial because of this motion.

[44] The third concern is expense. While expense is a factor, the rules also direct courts to make orders that are “proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding”: Rule 1.04 (1.1). The cost to Mr. Hieblinger of a summary judgment motion is considerably less than the cost for him to participate in a trial. I am mindful that I should consider the costs of both parties to the motion, not just those of the moving party. My consideration of expense may well have been different had the respondent raised a real issue against Mr. Hieblinger. Here the evidence against Mr. Hieblinger is so nonexistent that it would be abusive to require him to participate in a trial even if that means Mr. D’Urso’s overall costs will be higher. That is the risk of bringing unmeritorious claims.

[45] The fourth concern is judicial time. Judges are required to spend time hearing partial summary judgment motions and writing comprehensive reasons on an issue that does not dispose of the action entirely: Butera at para. 32. While that may be the case, it is also the duty of judges to protect innocent parties against abusive proceedings. Here the evidence against Mr. Hieblinger is so thin that it would be an injustice to require him to incur the time and cost of a trial simply to save me the time associated with hearing the motion and writing reasons.

[46] The fifth concern is that the record available on a partial summary judgment motion is likely not as extensive as the record at trial. This increases the risk of inconsistent findings. The record here is complete. Pleadings are complete. Affidavits of documents have been exchanged. Discoveries have been held. All parties have had ample opportunity to put whatever evidence and arguments they wish into the record.

(b) Respondents Other Cases are Distinguishable

[47] Mr. D’Urso raises a number of other cases that have rejected partial summary judgment motions. All are distinguishable.

[48] The first is Hamilton (City) v. Thier + Curran Architects Inc., 2015 ONCA 64. There, the motions judge had granted summary judgment dismissing a claim against a third party. In reversing the motions judge, the Court of Appeal noted that a defendant was put to significant prejudice in defending a summary judgment motion brought by a third party because it would force the defendant to demonstrate that it was effectively liable to the plaintiff. This would give the plaintiff a significant advantage over the defendant at trial: at para 19. In addition, on the facts of Thier, the Court of Appeal noted that even after dismissing the third party claim, the third party’s role in the delays which founded the main claim remained a live issue for the trial: para 20. No such concerns arise here.

[49] Mr. D’Urso relies on York Regional Standard Condominium Corporation No. 1206 v. 520 Steeles Developments Inc., 2018 ONSC 3766 for the proposition that the court will not grant partial summary judgment even if the case against the moving party is weak.

[50] I do not believe that submission accurately reflects the reasons in York Regional. In that case, the moving party argued it should be let out of the action because it had no involvement with the construction or development of the condominium which was the subject of the dispute. The moving party relied heavily on the submission that the evidentiary record did not contain a single contract between itself and any of the plaintiff or the 52 other defendants: para. 3. The court dismissed the motion because the moving party had produced an affidavit of documents asserting that it had no documents in its possession power or control that related to the development. One of the other defendants had, however, produced 414 documents that had been forwarded to or were sent by the moving party: para 63, 65. The court noted that in preparing its affidavit of document, the moving party had not searched any of its electronic databases for files even though it recognized that other defendants had produced electronic documents involving the moving party: para. 66. Moreover the promotional brochures for the condominium referred to the moving party: para 75. In these circumstances, the court found that there were genuine issues regarding the moving party’s involvement in the project which could not be resolved on the record before it. Mr. Hieblinger’s position is quite different. There has been no suggestion of inadequate production by Mr. Hieblinger nor has there been any suggestion that Mr. D’Urso has been prevented from adducing evidence relevant to a claim against Mr. Hieblinger.

[51] Mr. D’Urso relies on Cadeau v. Barrie Police Services Board, 2018 ONSC 4331 for the proposition that partial summary judgment will not be granted even where the moving party had little or no involvement with the facts giving rise to the claim. Again, I read the case differently. In Cadeau, the court dismissed a summary judgment motion brought by the Ontario Provincial Police. The OPP submitted that it should be let out of the action because it had no involvement in the allegedly improper police searches and improper arrest on which the claim was based. Both the searches and the arrest were carried out by the Barrie Police Force. The OPP had, however, passed information about the plaintiff on to the Barrie police force which led to the searches and the arrest. There was a real issue about whether the OPP had transmitted the information to the Barrie Police Force in a way that was negligent or that misrepresented the true facts they were supposed to be forwarding: see para. 16, 18 – 19, 21 – 22.

CONCLUSION

[52] Given that the claim against Mr. Hieblinger can be readily bifurcated from other claims in the action and given that the policy concerns raised in Butera do not apply here, this is a case in which it is appropriate to grant summary judgment in favour of Mr. Hieblinger. I therefore grant the motion and dismiss the counterclaim against Mr. Hieblinger.

[53] If the parties cannot agree on costs, Mr. Hieblinger can make written submissions on costs within 14 days of these reasons. Mr. D’Urso will have 7 days to respond. Mr. Hieblinger will have 3 days for reply, if any.

Koehnen J.

Released: September 19, 2018