Court File and Parties

COURT FILE NO.: CV-14-4054-SR

DATE: 2018-02-07

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: H. DE GROOT REAL ESTATE LIMITED, Plaintiff (Moving Party)

AND:

SCRIBES INC., HEALTHENET INC., NIGHTINGALE INFORMATIX CORPORATION and NIGHTINGALE HEALTHENET CANADA CORPORATION, Defendants

BEFORE: The Honourable Mr. Justice P.J. Flynn

COUNSEL: Roger N. MacIntosh, Counsel for the Plaintiff, Moving Party R. Bevan Brooksbank, Counsel for the Defendants, Nightingale

HEARD: November 30, 2017

SUMMARY JUDGMENT MOTION

[1] The Plaintiff carries on business in Ontario as a realtor and commercial landlord. Here it moves for summary judgment as regards certain rental arrears.

[2] It has every right to bring such a motion against the actual tenant, the Defendant, Nightingale HealtheNet Canada Corporation (“NHCC”) and, in fact, the Nightingale Defendants concede this.

[3] But I must dismiss the Plaintiff’s motion against Nightingale Informatix Corporation (“NIC”) and instead grant summary judgment in favour of NIC.

[4] These are my reasons for doing that. The bottom line is much like the case of Flying Saucer Restaurant Ltd. v. Lick’s Leasing Inc. where my brother, Quinn J., found it was for the Plaintiff in that case to protect itself in respect of the financial soundness of the tenant. Here it was up to this sophisticated landlord Plaintiff to protect itself from the financial failure of its tenant, NHCC. It did not do this.

[5] The Plaintiff is a very experienced realtor and commercial landlord.

[6] It entered into a written Agreement to Lease with Scribes Inc. for certain units in Cambridge under which Scribes occupied on May 1, 2005.

[7] At the time, Scribes was in the business of offering transcription services to hospitals in the United States while NIC offered software products to physicians, mainly in Canada.

[8] NHCC was incorporated in January 2006 as a wholly owned subsidiary of NIC for the sole purpose of acquiring the assets and assuming the business operations of Scribes, thus isolating NIC from any liability.

[9] In January 2006, NIC’s Chief Financial Officer wrote seeking the Plaintiff’s consent to the assignment of the Scribes lease to NIC “or one of NIC’s Subsidiaries”. And it was in that fashion that the Consent to Assignment was executed.

[10] During the next half-dozen years, NHCC operated its business at the premises under the direction of its own board, sharing a Chief Financial Officer with its parent, NIC, and filed its own tax returns and financial statements as well as the necessary consolidated financial statements with NIC.

[11] But then NHCC ran into financial difficulty. And while it has neither been liquidated nor dissolved, it became commercially unviable sometime in 2012.

[12] The Plaintiff requested, but never received, a guarantee of the Lease by NIC. But it was never NIC’s intent to assume the lease and it never did express to the Plaintiff such an intention. After all, that was why it had NHCC incorporated.

[13] The Plaintiff never did request a written Assignment or Assumption of the Lease.

[14] Nor did NIC ever enter into any written agreement with the Plaintiff by which it agreed to assume the tenant’s obligations.

[15] After the closing of the Scribes acquisition, NHCC hired its staff, continued to occupy the premises, and paid rent to the Plaintiff, including Scribes’ arrears.

[16] NHCC occupied the premises and paid the rent for the entire period from March 2006 to July 2012.

[17] At that point, while NHCC continued to occupy the premises, it could no longer pay rent. And NIC stepped in to assist it. NIC paid the rent from August 2012 to April 2013.

[18] I find as a fact that during NHCC’s tenancy, there was no interaction between NIC and the Plaintiff until the Plaintiff made inquiries about arrears of rent and there were discussions about subletting the premises.

[19] NHCC vacated the premises in May 2013.

[20] The Plaintiff sued the Defendants jointly and severally for outstanding rent and common area maintenance arrears for the period June 2013 through and including December 2013.

[21] If fully computed, this claim would amount to about $185,000, plus interest. But the Plaintiff has chosen to proceed by a Simplified Procedure claim and hence has trimmed its claim for summary judgment to $100,000 for rent owing, plus interest and costs.

[22] The question for me is whether, in the absence of any written agreement or any material involvement with the premises, NIC may be held liable.

[23] The Plaintiff answers in the affirmative by relying on the concepts of equitable assignment or part performance.

[24] The Defendants reject either of these roads to liability. They also thwart any attempt to ground liability on the basis of piercing NHCC’s corporate veil (though the Plaintiff submits that it is not relying on this doctrine).

[25] Let me put this last concern of the Defendants to bed first.

[26] On the facts of this case, there is neither fraud nor anything akin to fraud in the conduct of the Defendants or in the creation of NHCC which would justify piercing NHCC’s corporate veil to attach liability to its parent, NIC.

[27] NIC and NHCC are separate legal entities and while the Plaintiff may have viewed them as interchangeable, they were not.

[28] There is neither any pleading nor any evidence to justify a piercing.

[29] Again, I adopt Quinn J.’s reasoning in Flying Saucer, supra:

There is nothing improper about incorporating a company solely for the purpose of entering into a commercial lease.

[30] In any summary judgment motion, the moving party bears the legal burden to satisfy the court that there is no genuine issue requiring a trial. And the court is entitled to assume that both parties have put their best foot forward and placed before it all of the evidence that they would lead at trial.

[31] In my view, the Plaintiff has failed to meet its burden. Far from putting its best foot forward the Plaintiff elected not to cross-examine the NIC affiant, or serve an affidavit in reply, thus leaving the NIC evidence uncontradicted and uncontroverted.

[32] The Plaintiff relies on equitable assignment of the NHCC assumed leased to NIC and/or part performance of the tenant’s obligations by NIC to render NIC liable for the amount sought. But, in order for a contract for an interest in land to be actionable, the alleged agreement must be in writing. Here there is no such writing. Nor is there any guarantee by NIC.

[33] The Plaintiff’s reliance on equitable assignment is merely by way of argument. There are no facts underpinning this argument, but for the Plaintiff’s claim that NIC partly performed the tenant’s role so as to create an assignment out of thin air.

[34] The Plaintiff first relies on the fact that NIC requested the Plaintiff to perform work on the premises. But a close scrutiny of the evidence does not support this. I find that such request(s) were made by the real tenant, NHCC.

[35] Then the Plaintiff relies more strongly on the fact that, after NHCC got into financial trouble, its parent, NIC, stepped in to pay its rent for about a year. This had never happened before during the 6 year tenancy. I find such assistance by NIC to fall short of acts of part performance which would burden NIC with all the obligations of the tenant.

[36] Finally, there is the issue of the overholding of the keys by the Nightingale Defendants. The evidence is not clear as to why those keys were not returned when NHCC vacated the premises, and NHCC’s liability for the rent may very well extend until the landlord has the keys back and could regain absolute possession, but there is no compelling reason to use this conduct as a means to convert NIC from parent of the tenant to tenant itself.

[37] In summary, there was nothing in writing that would “stick” NIC with NHCC’s obligations under the lease. NIC did not occupy the premises, pay rent, except for about a year after NHCC’s business failed, seek authorization for alteration or repairs, deal with the utilities or engage in efforts to sublet. There simply is no basis to conclude that the lease was equitably assigned to NIC.

[38] For all of these reasons I dismiss the Plaintiff’s motion for summary judgment against all Defendants except Nightingale HealtheNet Canada Corporation, against which it shall have judgment in the full amount of the claim; and I grant summary judgment dismissing the claim against NIC.

[39] At the close of this hearing both parties’ submitted Bills of Costs (even though I asked for and am entitled to Form 57-B Costs Outlines).

[40] It should be apparent that the Defendants achieved a full measure of success. Not only did they have the Plaintiff’s motion for summary judgment dismissed, they succeeded in persuading me to grant them summary judgment. And so, the Defendants are entitled to their costs. In accordance with the principles in Boucher and other cases, I am meant to fix costs that are fair and reasonable in accordance with the reasonable expectations of the losing party.

[41] Here the Defendants seek $25,164.62, all inclusive, while the Plaintiff, if successful, would have claimed $59,425.75.

[42] The Defendants’ claim would appear, prima facie, by comparison to be more than reasonable.

[43] But I would find Defendants’ counsel’s actual rates to be a “tad” high and would reduce the fee component by about 10%.

[44] Accordingly, I would fix the Defendants’ costs at $20,000, all inclusive.

P.J. Flynn J.

Date: February 7, 2018