Court File and Parties

COURT FILE NO.: CV-17-571626 RELEASED: 2018/11/19 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Robert Allan Perry v. Neil D’Souza and Mass Fidelity Inc.

BEFORE: Master Graham HEARD: November 13, 2018

COUNSEL: Joseph Figliomeni for the plaintiff (moving party) Gregory Dimitriou for the defendants and for the non-party David Donahue Alfred Schorr for the non-party Eric Grossman

REASONS FOR DECISION

(Motion by plaintiff to compel answers to Eric Grossman’s undertakings and to compel David Donahue to attend at an examination in aid of execution)

[1] The plaintiff’s action is for breach of his employment agreement with the defendant Mass Fidelity Inc. and for breach by the defendant D’Souza of his personal guarantee of that agreement. On November 27, 2017, Cavanagh J. gave summary judgment against both defendants. Following the Court of Appeal’s dismissal of the defendant D’Souza’s appeal of the judgment on May 26, 2018, the defendant D’Souza paid the judgment against him. The plaintiff is now trying to collect his judgment against the corporate defendant Mass Fidelity Inc..

[2] The plaintiff conducted an examination in aid of execution of Eric Grossman, a non-party, on January 19, 2018. The plaintiff now moves to compel Mr. Grossman and Mass Fidelity Inc. to answer undertakings given at that examination. The plaintiff also moves for an order requiring the attendance of David Donahue, another non-party, at an examination in aid of execution. For these reasons, the motions are dismissed.

[3] Examinations in aid of execution are conducted under rule 60.18 of the Rules of Civil Procedure:

60.18(1) In subrules (2) to (6),

“ creditor” includes a person entitled to obtain or enforce a writ of possession, delivery or sequestration;

“ debtor” includes a person against whom a writ of possession, delivery or sequestration may be or has been issued.

(2) A creditor may examine the debtor in relation to,

(a) the reason for nonpayment or non-performance of the order;

(b) the debtor’s income or property;

(c) the debts owed to and by the debtor;

(d) the disposal the debtor has made of any property either before or after the making of the order;

(e) the debtor’s present, past and future means to satisfy the order;

(f) whether the debtor intends to obey the order or has any reason for not doing so; and

(g) any other matter pertinent to the enforcement of the order.

(3) An officer or director of a corporate debtor, or, in the case of a debtor that is a partnership or sole proprietorship, a partner or sole proprietor against whom the order may be enforced, may be examined on behalf of the debtor in relation to the matters set out in subrule (2).

(4) Only one examination under subrule (2) or (3) may be held in a twelve month period in respect of a debtor in the same proceeding, unless the court orders otherwise.

(5) Where it appears from an examination under subrules (2) to (4) that a debtor has concealed or made away with property to defeat or defraud creditors, a judge may make a contempt order against the debtor.

(6) Where any difficulty arises concerning the enforcement of an order, the court may,

(a) make an order for the examination of any person who the court is satisfied may have knowledge of the matters set out in subrule (2); and

(b) make such order for the examination of any other person as is just.

(7) Despite clause 34.04(1)(a) (service on lawyer), a party who is to be examined in aid of execution shall be served with a notice of examination personally or by an alternative to personal service.

Motion to compel answers to Mr. Grossman’s undertakings

[4] The only debtor to whom rule 60.18 would apply is Mass Fidelity Inc.. Mr. Grossman is not an officer or director of this corporation. Typically, if someone in his position were to be examined in relation to an unrelated corporate party’s debt, it would be pursuant to a court order obtained under rule 60.18(6). In this case, however, the plaintiff simply served Mr. Grossman with a notice of examination by personal service, on January 3, 2018. Mr. Grossman responded through counsel who attended with him at the examination on January 19, 2018. Mr. Grossman’s counsel on this motion acknowledged that his voluntary attendance constituted a waiver of the requirement on the plaintiff to obtain an order compelling him to attend.

[5] It is agreed by the parties that Mr. Grossman gave various undertakings at his examination. However, Mr. Grossman submits that the plaintiff should be precluded from requiring that he answer those undertakings by the plaintiff’s conduct subsequent to the examination.

[6] On February 1, 2018, less than two weeks after Mr. Grossman’s examination, the plaintiff in this action commenced a second action (“the 2018 action”) against the defendants D’Souza and Mass Fidelity Inc., and also naming as defendants Mr. Grossman and two corporations under his control, Aquilian Financial Corporation and Mass Fidelity Audio Inc.. The plaintiff’s pleading in the 2018 action includes the following allegations:

“9. In the process of attempting to enforce his judgment against Mass Fidelity, in January 2018 , Robert [the plaintiff Robert Perry] discovered the particulars of a fraudulent scheme perpetrated by Neil and Eric [the defendant Neil D’Souza and Eric Grossman], which fraudulent scheme was intended to defeat, hinder or delay Mass Fidelity’s most significant creditors, including Robert.

10. The fraudulent scheme was conceived by Neil and Eric at a time when Mass Fidelity had substantial debts and when Neil and Eric were aware of Mass Fidelity’s precarious financial condition. In furtherance of this fraudulent scheme, Neil and Eric incorporated the corporate defendants Mass Fidelity Audio and Aquilian. Neil and Eric then diverted, in whole or in part, to Aquilian and Mass Fidelity, and to their personal benefit, all revenues, profits and benefits which would have been enjoyed by Mass Fidelity. [Emphasis added]

[7] Mr. Grossman submits that the plaintiff relied at least in part on evidence obtained from him on his examination in relation to the Mass Fidelity Inc. debt in this action (no. CV-17-571626) in naming Mr. Grossman and his company Aquilian as defendants in the 2018 action. Mr. Grossman further submits that in so doing, the plaintiff breached the implied undertaking rule.

[8] The common law implied undertaking rule was confirmed to be applicable in Ontario in Goodman v. Rossi, [1995] O.J. No. 1906 (C.A.). The Court cited with approval Williston and Rolls, The Law of Civil Procedure (1970), at p. 941:

“There is an implied undertaking by a party to whom documents are produced that he will not use them for a collateral or ulterior purpose; any such use of the documents is a contempt of court.”

[9] The Court in Goodman also considered the possibility of relief from compliance with the implied undertaking rule being granted in appropriate circumstances, and quoted from Carbone v. De La Rocha (1993), 13 O.R.(3d) 355 (Gen. Div.) at p. 369:

“The process of this court cannot be or appear to be an instrument of the initiation of litigation not otherwise contemplated or part of the cause of action which disclosed the potentially new claim. To be so would undermine full and frank disclosure by parties. This would be contrary to the public interest and is an abuse of the process of the court.

Of course, there will be cases where the interests of the discovered party sought to be protected by the rule will not be seriously affected, or affected at all, by a collateral use of discovered document [sic], but those of the discovering party would be seriously affected if use could not be made of the documents. This is the kind of case where it would reasonably be thought that the discovered party would give his or her consent to the use of the documents but, failing this, would be a proper case for granting relief.”

[10] The plaintiff relies on the common law implied undertaking rule rather than the deemed undertaking rule in rule 30.1 of the Rules of Civil Procedure. Rule 30.1.01(1) enumerates the rules under which the evidence obtained is protected by the deemed undertaking in rule 30.1.01(3), and this list of rules does not include rule 60.18. Rule 30.1.01(2) specifically states that “this Rule does not apply to evidence or information obtained otherwise than under the rules referred to in subrule (1)”, so rule 30.1.01(3) does not apply to examinations under rule 60.18. However, based on the policy recognized in Goodman, that “the process of this court cannot be or appear to be an instrument of the initiation of litigation not otherwise contemplated or part of the cause of action which disclosed the potentially new claim”, the common law implied undertaking rule appropriately applies to an examination under rule 60.18(2) or (6).

[11] The plaintiff submits that the issue of whether the evidence from Mr. Grossman’s oral examination can be used in the 2018 action should be addressed in that action. I disagree. At least some of the evidence obtained on Mr. Grossman’s oral examination formed the basis for the pleading against him in the 2018 action. It is incumbent on the party seeking relief from the implied undertaking rule to do so by way of a motion to the court before that party uses any information obtained for some other purpose. The proper means for the plaintiff to address whether evidence obtained from Mr. Grossman in this action could be used as a basis for the 2018 action would have been to move for leave in this action, on notice to Mr. Grossman.

[12] The unauthorized use of evidence obtained in one proceeding for a “collateral or ulterior purpose” has been described in the authorities reviewed above as “a contempt of court” (Williston and Rolls, supra) and “an abuse of the process of the court” (Carbone, supra). I have no jurisdiction to make a finding of contempt. However, I do accept that the plaintiff’s use of Mr. Grossman’s evidence from his January 19, 2018 examination in commencing another action, without leave of the court, constitutes an abuse of process. Mr. Grossman should not be required to provide any more evidence arising from his examination until the plaintiff addresses the leave issue. Accordingly, the plaintiff’s motion to compel Mr. Goodman to answer undertakings is dismissed.

[13] The plaintiff, in his notice of motion, also seeks an order requiring Mass Fidelity Inc. to provide answers to undertakings given on “the examination in aid of execution of the defendant Mass Fidelity Inc.”. Mr. Grossman was never an officer or director of Mass Fidelity Inc. and he was neither asked whether nor did he testify that he was authorized to give evidence binding on that corporation. All counsel on this motion agree that Mr. Grossman’s examination was not an examination of Mass Fidelity Inc. and there is therefore no basis on which to order that Mass Fidelity Inc. answer his undertakings. The motion to compel Mass Fidelity Inc. to answer undertakings is therefore dismissed.

Motion to compel David Donahue to attend at an examination under rule 60.18(6)

[14] The plaintiff deposes in paragraph 37 of his supporting affidavit that shortly after the release of Cavanagh J.’s Reasons for Judgment, he was contacted by David Donahue, whom he describes as a contract employee of Mass Fidelity Inc.. He further states that Mr. Donahue informed him that:

• From March, 2017 to late September, 2017, he worked for Mass Fidelity Inc. with Neil D’Souza and Eric Grossman, under the direction of Neil D’Souza.
• During this time he coordinated the movement of Mass Fidelity inventory from the Asia and European warehouses, mostly into the USA so that it could be sold, primarily via eCommerce.
• Mass Fidelity Inc. continued to sell products via its web site and Amazon.com during this period.
• He was paid for his work and he is no longer performing services for Mass Fidelity Inc..

[15] The plaintiff submits that Mr. Donahue should be ordered to be examined in aid of execution under rule 60.18(6) on the basis that he has experienced difficulty “concerning the enforcement of an order” (i.e. his judgment against Mass Fidelity Inc.) and Mr. Donahue “may have knowledge of the matters set out in subrule (2)” (i.e. the disposal that Mass Fidelity Inc. “has made of any property”).

[16] Mr. Donahue submits that he should not be ordered to attend to be examined because the plaintiff has not conducted an examination in aid of execution of Mass Fidelity Inc. under rule 60.18(2) and accordingly, has not exhausted all other avenues of obtaining the information that he seeks. Mr. Donahue relies on CIBC v. Sutton (1981), 34 O.R.(2d) 482 (C.A.) in which the Court stated:

“Caution, however, should be exercised by a judge before whom an application is made so that persons who are strangers to the litigation are not unduly harassed by examination. The relatives of a judgment debtor or a stranger should not be ordered to be examined unless the judgment creditor has exhausted all means available before resorting to an application of this kind. However, the wording of the Rule leaves it to the discretion of the court to make an order where a difficulty arises in the execution or enforcement of a judgment.”

[17] The Court of Appeal has reiterated this principle in its more recent decisions in Citi Cards Canada Inc. v. Pleasance (2011), 2011 ONCA 3, 103 O.R.(3d) 241 at paragraph 37 and Royal Bank of Canada v. Trang, 2014 ONCA 883, [2014] O.J. No. 5873 at paragraph 78.

[18] The plaintiff acknowledges that he has not conducted an examination of the judgment debtor itself. After conducting the examination of Eric Grossman on January 19, 2018, he wrote to counsel for Mass Fidelity Inc. on January 29, 2018, asking whether his client would attend an examination in aid of execution. The defendants’ counsel replied on the same date that the plaintiff had already examined Mr. Grossman on behalf of Mass Fidelity Inc. and he was not entitled to a second examination.

[19] Counsel exchanged further correspondence on October 15, 2018 at which time defendants’ counsel stated that the examination of Mr. Grossman was “ not a judgment debtor examination of MFI” [emphasis added]. Plaintiff’s counsel then reiterated his request that Mr. D’Souza attend to be examined but received no further reply. This correspondence was exchanged following service of the plaintiff’s motion record on defendants’ counsel and Mr. Donahue on October 2 and October 4, 2018 respectively.

[20] The Court of Appeal states that “a stranger should not be ordered to be examined unless the judgment creditor has exhausted all means available before resorting to an application of this kind”. The words “all means available” include an examination of the principal of the judgment debtor itself, in this case Neil D’Souza. The caution urged by the Court is “so that persons who are strangers to the litigation (i.e. Mr. Donahue) are not unduly harassed by examination”. The appropriate response from the plaintiff to the defendant’s counsel’s resistance to producing Mr. D’Souza to be examined would have been to move for an order compelling him to attend, rather than bringing this motion against Mr. Donahue.

[21] Defendants’ counsel attempted to argue that he was justified in refusing to produce Mr. D’Souza to be examined because, after plaintiff’s counsel had examined Mr. Grossman on January 19, 2018, rule 60.18(4) precluded another examination of a judgment debtor within the following twelve months. However, rule 60.18(4) states that “only one examination under subrule (2) or (3) may be held in a twelve month period” [emphasis added]. Defendants’ counsel now concedes that the examination of Mr. Grossman was not an examination of a debtor, so that examination must have been under rule 60.18(6) and not rule 60.18(2) or (3). The fact that rule 60.18(4) does not refer to subrule (6) means that an examination under that subrule of a stranger to the litigation does not preclude an examination of the debtor, or of another person with knowledge of the debtor’s circumstances or conduct, within the following twelve months.

[22] For these reasons, the plaintiff’s motion to compel David Donahue to attend to be examined in aid of execution is dismissed, without prejudice to a further motion following an examination of Mr. D’Souza, if conducted.

Costs

[23] Counsel for the plaintiff and for the defendants and Mr. Donahue filed costs outlines at the conclusion of the hearing. If the parties cannot agree on the disposition of the costs of the motion, they may make written submissions, the defendants, Mr. Donahue and Mr. Grossman within 30 days, and the plaintiff within 20 days thereafter.

MASTER GRAHAM November 19, 2018