Court File and Parties

Court File No.: CV-17-574859 Date: 2018-11-09 Superior Court of Justice - Ontario

Re: 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: LORENZO D’URSO, Plaintiff by Counterclaim

And: ANTHONY KERWIN, WAYNE DESERRES, ANTHONY DONALD KERWIN and FRANK HIEBLINGER, Defendants by Counterclaim

Before: Koehnen J.

Counsel: Charles C. Chang, for the Defendant and Plaintiff by Counterclaim, Lorenzo D’Urso Justin Heimpel, for the Defendant by Counterclaim, Frank Hieblinger

Heard: In writing

Endorsement

[1] The defendant Frank Hieblinger seeks costs on a full indemnity basis fixed in the amount of $57,604.21 arising out of a motion for summary judgment that I granted in his favour, reported at 2018 ONSC 5484.

[2] Lorenzo D’Urso, the plaintiff by counterclaim who joined Mr. Hieblinger to the action, submits that costs should be awarded on a partial indemnity basis, fixed at $17,909.06.

[3] For the reasons set out below, I award Mr. Hieblinger costs on a full indemnity basis fixed in the amount of $57,604.21.

The Scale of Costs

[4] The usual rule is that costs should be awarded on a partial indemnity basis. The court should only depart from this rule for very good reason: Sacks v. Ross, 2016 ONSC 2498 at paragraphs 24 – 25, 33.

[5] That said, full indemnity costs are available where the party against whom the award is made has engaged in reprehensible conduct: Davies v. Clarington, 2009 ONCA 722 at para 31. Common dictionary definitions of reprehensible include deserving censure, condemnation or rebuke.

[6] In October 2016, Mr. Hieblinger was recruited from stable employment to join Dur-A-Bus. Mr. D’Urso was a director and controlling shareholder of Dur-A-Bus. The company was financially troubled from the start. Mr. D’Urso had run a predecessor company which was heavily indebted and on the brink of insolvency. Dur-A-Bus was the product of a restructuring of the predecessor company. Dur-A-Bus assumed much of the predecessor’s historic debt. The restructuring occurred before Mr. Hieblinger was recruited.

[7] Mr. Hieblinger was hired as VP finance of the restructured enterprise with an annual salary of $135,000. He was neither a shareholder nor a director. He had no signing authority, had no authority to hire or fire employees, and had no responsibility for the company’s operations. He did not even have the authority to approve employee expenses.

[8] When Dur-A-Bus collapsed in April 2017, Mr. Hieblinger was sent home with other employees. He received no termination pay, no severance pay, and no common law notice. He was not even paid for the work he did during his last pay period.

[9] After the collapse of the company, some of its shareholders commenced an action against Mr. D’Urso. He defended and counterclaimed against the shareholder - plaintiffs. In addition, Mr. D’Urso joined Mr. Hieblinger as a defendant to the counterclaim. Mr. Hieblinger had not been a party to the action until then.

[10] Mr. Hieblinger defended. When delivering his defence in July 2017, his counsel noted that there was no basis in fact or law to support the claims against Mr. Hieblinger, that Mr. Hieblinger had kept Mr. D’Urso fully apprised of the finances of the company, that Mr. Hieblinger had no authority to influence financial decisions and that the counterclaim was based on the premise that Mr. Hieblinger had helped orchestrate the circumstances that left him without a job, without income, without payment of wages owing to him and without severance. Mr. Hieblinger’s lawyer summarized the position as “simply nonsensical.” In addition Mr. Hieblinger’s counsel indicated that Mr. Hieblinger “would be amenable to a dismissal of the counterclaims on reasonable terms at this stage.” He noted however that if Mr. D’Urso continued the counterclaim against Mr. Hieblinger, he would bring a motion for summary judgment and would seek full recovery of costs when the counterclaims were dismissed.

[11] Mr. D’Urso persisted with the counterclaim.

[12] In February 2018, Mr. Hieblinger served an offer to settle on terms whereby Mr. D’Urso would pay him $10,000 for costs and the counterclaim would be dismissed. By that point, Mr. Hieblinger had already incurred costs of $19,823.65.

[13] Mr. D’Urso did not respond to the settlement offer and persisted with the counterclaim.

[14] As his counsel had forewarned, Mr. Hieblinger brought a motion for summary judgment. As his counsel had forewarned, the motion for summary judgment was successful.

[15] On the motion for summary judgment, I dismissed the claim against Mr. Hieblinger because it was entirely without foundation. The claim was dismissed based on Mr. D’Urso’s own admissions on cross-examination. Those admissions completely undermined the allegations that Mr. D’Urso had made against Mr. Hieblinger in his counterclaim and in his affidavit in support of the motion for summary judgment. Even in the face of those admissions, however, Mr. D’Urso maintained those same allegations in his factum on the motion for summary judgment. Without repeating my reasons for summary judgment, Mr. D’Urso in effect admitted that he had no evidence at all that Mr. Hieblinger was involved in any of the conduct of which Mr. D’Urso complained in his counterclaim.

[16] Modern costs rules are designed to foster three fundamental purposes:

a) To indemnify successful litigants for the cost of litigation;

b) To encourage settlements; and

c) To discourage and sanction inappropriate behaviour by litigants:” Cobalt v. Coleman (Township), [2018] O.J. No. 4619 at para. 3 citing Fong v. Chan, 46 O.R. (3rd) 330.

[17] The counterclaim had no factual foundation. In legal terms it was frivolous.

[18] For Mr. D’Urso to commence an $11 million claim against a former employee who was earning $135,000 per year, which claim was entirely baseless and without any foundation is, in the language of Fong v. Chan, inappropriate behaviour that should be discouraged.

[19] On the basis of Fong it is therefore appropriate to design a cost award that serves the purpose of discouraging such inappropriate behaviour.

[20] Bringing and maintaining a baseless claim of $11 million against a former employee, is conduct that I have no hesitation in describing as reprehensible in that it is worthy of censure, condemnation or rebuke.

[21] Having an unsuccessful litigant pay the costs of the successful party on a partial indemnity scale reflects a balance of two competing values. On the one hand, a successful party should not have to pay the cost of litigation that he/she should not have been forced to bring (in the case of a successful plaintiff) or should not have been forced to defend (in the case of a successful defendant). On the other hand, cost awards should not have a chilling effect on the commencement of legitimate, but ultimately unsuccessful claims. Litigation often has social utility even where the claim is unsuccessful. It helps the law evolve and helps society evolve.

[22] Mr. D’Urso’s claim against Mr. Hieblinger engages no such values. There is no social utility in a wealthier, more powerful individual commencing a lawsuit against a weaker party, which lawsuit he effectively admits is without foundation. That is an abuse of the litigation process. A failure to recognize conduct of that sort as reprehensible would bring the administration of justice into disrepute among the public at large.

[23] Mr. D’Urso submits that my reasons granting summary judgment do not make any finding to the effect that his conduct was reprehensible. While my reasons contain no conclusion of that nature, such a finding was not relevant to the motion for summary judgment. The reasons on the motion do, however, contain all of the factual bases on which my finding of reprehensible conduct is grounded.

Quantum

[24] In addition to the scale of costs, Mr. D’Urso objects to the quantum of costs Mr. Hieblinger seeks and submits they are “grossly excessive.” I have reviewed the bill of costs and the four sets of cost submissions (submission, response, reply and sur-reply) and find that the time spent which is reflected in the costs request is reasonable.

[25] Mr. D’Urso complains that Mr. Hieblinger used three lawyers and a law clerk. That staffing was appropriate here. There was no unwarranted duplication in staffing. The three lawyers had different levels of seniority (17, 8 and 4 year calls) and were assigned different tasks. Only one lawyer was present at any of the cross-examinations or court attendances, including on the motion for summary judgment. In light of the volume of productions, the need for detailed factual investigation, and the breadth of tasks necessary, it was appropriate and efficient to use staff with differing levels of experience.

[26] Mr. D’Urso objects to the 16.2 hours of work claimed for what Mr. D’Urso describes as a statement of defence that constituted less than 5 ½ pages of substantive content. Mr. D’Urso submits that five hours would be an appropriate amount of time.

[27] The time spent by counsel in responding to a claim cannot be measured by reference to the number of pages in the defence. Time spent defending includes time spent investigating the claim and the information the client communicates to counsel.

[28] Here, the allegations against Mr. Hieblinger were fairly general in nature. The amount claimed was substantial. In those circumstances, responsible counsel would be expected to investigate the circumstances of Mr. Hieblinger’s employment in some detail to determine how best to respond. Counsel is not merely a transcriptionist who records the client’s words and types “Defence” across the top of the document. Counsel needs to listen to the client, seek documentation that one would expect to exist in light of the client’s explanation, review the documentation, discuss questions arising out of it with the client and then, at the end of that process, determine what the defence should contain. The number of pages in the defence is not necessarily related to the amount of time spent preparing it. One can readily see circumstances in which a shorter defence takes more time to prepare. The shorter defence may require more thorough investigation of facts and law in order to narrow in on the “real” defence rather does a boilerplate document than refers to every defence imaginable.

[29] Counsel faced with a claim of this size must treat it seriously. Spending 16.2 hours to complete the steps described for the period Mr. Hieblinger was employed is efficient and conservative.

[30] Mr. D’Urso objects to the 54.5 hours spent preparing motion materials for summary judgment. That does not strike me as an unreasonable amount of time. Given the general allegations Mr. D’Urso made, it was necessary for Mr. Hieblinger and his lawyer to review all communications during his employment to find and produce evidence that Mr. Hieblinger had acted responsibly and had kept Mr. D’Urso informed of all material steps he took. Mr. Hieblinger produced over 1,000 documents. Mr. D’Urso produced over 200 documents. The affidavits of documents of the defendants to the main action also had to be reviewed.

[31] The product of this review was a detailed, compelling affidavit that allowed Mr. Hieblinger to dispose of the frivolous allegations against him. The simple reality is that it takes time to produce compelling documents for court. Mr. Hieblinger’s counsel did so. Neither Mr. Hieblinger nor his counsel should be penalized for assisting the court by placing a full record before it in a logical, understandable format.

[32] Part of the time preparing for the motion included time described as dealing with the consolidation and receivership. Mr. D’Urso took the position in his responding materials that there was no consolidation or receivership “in the case at bar.” There was, however, a parallel proceeding in which Mr. D’Urso also joined Mr. Hieblinger. Discussions occurred to consolidate the two proceedings. The consolidation was never completed because Mr. D’Urso petitioned the company involved in the parallel proceeding into receivership which stayed that proceeding. Mr. D’Urso takes the position that any time spent on consolidation is attributable to the parallel proceeding, not this one. I disagree. The consolidation involved the current proceeding as much as it did the parallel proceeding. Time spent is therefore appropriate to compensate for in this proceeding. In addition, the corporation for which Mr. Hieblinger worked was assigned into receivership. There were dealings between Mr. Hieblinger’s counsel and the receiver dealing with the allegations made against Mr. Hieblinger in this case. Those dealings are also ones which are appropriately claimed in this proceeding.

[33] Mr. D’Urso makes similar allegations about excessive time spent on the two examinations for discovery/cross-examinations and the time spent preparing the factum for summary judgment. I cannot accept those submissions either. Mr. Hieblinger claims time for two days of cross-examination. Mr. D’Urso complains that there were only 6 ½ hours of cross-examination.

[34] That misses the point. Mr. Hieblinger’s counsel is based in Waterloo. The cross-examinations appear to have taken place in Toronto. The time claimed includes travel time. In addition, the two cross-examinations were back to back and were conducted by different lawyers with senior counsel cross-examining Mr. D’Urso and junior counsel attending on Mr. Hieblinger’s cross-examination. That meant junior counsel had to be ready to go as soon as Mr. D’Urso’s cross-examination was completed. As things transpired it meant junior counsel had to be available for a second day.

[35] With the benefit of hindsight, the time spent on any matter can always be criticized as falling short of optimal efficiency. That, however, is not a basis to challenge a claim for costs. Rule 57.01(1) (b) refers to what “an unsuccessful party could reasonably expect to pay in relation to” a particular step in the proceeding, as a relevant factor. None of the time spent here is beyond what a party could reasonable expect to pay given the size and nature of the claim. Expending $57,000 to dismiss an $11 million-dollar claim of this nature is reasonable as are the amounts spent on particular tasks in the action.

[36] The amount Mr. Hieblinger claims is also reasonable in relation to the cost factors set out under rule 57.01(1).

[37] While the facts and law were not overly complicated, the general nature of the pleading required a detailed review of documents and facts. The matter was of great importance to Mr. Hieblinger. A claim of this magnitude can be catastrophic for a wage earner. In addition, the claim went to Mr. Hieblinger’s competence and integrity which could affect his future employment prospects.

[38] Mr. D’Urso’s conduct unnecessarily lengthened the proceedings. As already noted the claim was frivolous. Mr. D’Urso was given an opportunity on delivery of the defence and on delivery of the settlement offer to terminate the proceedings on reasonable terms. Mr. D’Urso did not respond other than to press on with the claim.

[39] Given that Mr. D’Urso effectively admitted during cross-examination that he had no evidence to support any of the allegations against Mr. Hieblinger, Mr. D’Urso should have withdrawn the claim by that point. Any steps Mr.Hieblinger was required to take after that point became even more unnecessary than they were at the outset of the claim.

[40] Although Mr. Hieblinger’s settlement offer cannot be considered for purposes of the consequences that flow under rule 49 because of the specific drafting of that rule, it is nevertheless relevant to take settlement offers into account as a factor affecting the court’s discretion under rule 57.01: S & A Strasser v. Richmond Hill, 1 O.R. (3d) 243, [1990] O.J. No. 2321. As noted above, Mr. Hieblinger offered to settle the matter at an earlier stage for payment of $10,000 in costs. Mr. D’Urso did not respond.

[41] The cost factors I am directed to take into account under rule 57.01 also points to a higher cost award.

[42] For the reasons set out above I fix costs and disbursements, including HST, in the amount of $57,604.21 payable by Mr. D’Urso to Mr. Hieblinger within 30 days.

Koehnen J. Date: November 9, 2018