Court File and Parties

COURT FILE NO.: CV-18-137669-00 DATE: 20190322

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ROYAL BANK OF CANADA Plaintiff/Moving Party – and – NISAN PARANTHAMAN and 1458875 ONTARIO CORPORATION o/a YORKTOWN MOTORS Defendants/Respondents

Counsel: Gregory W. Bowden, for the Plaintiff/Moving Party Meredith Bacal, for the Defendant/Respondent 1458875 Ontario Corporation o/a Yorktown Motors

HEARD: February 14, 2019

DAWE J.

[1] Yorktown Motors, the business name of the defendant 1458875 Ontario Corporation (hereinafter referred to as “Yorktown”), is an automobile dealer. It has entered into a contract with the plaintiff Royal Bank of Canada (“RBC”) that enables Yorktown to arrange vehicle purchase financing for its customers through RBC.

[2] In 2016 the defendant Nisan Paranthaman (“Paranthaman”) bought a used Mercedes-Benz car from Yorktown, financed by RBC. Paranthaman signed a conditional sales contract with Yorktown, which assigned its interest in this contract to RBC. The contract required Paranthaman to make bi-weekly loan payments to RBC.

[3] In 2018, RBC sued Paranthaman and Yorktown, claiming that Paranthaman had defaulted on his loan payments and that Yorktown had breached the terms of its contract with RBC. Paranthaman and Yorktown have both filed Statements of Defence and have brought crossclaims against each other, and Yorktown has also recently brought a third party claim against several other parties, as discussed further below.

[4] In summary, the underlying cause of this dispute is the apparent discovery by Paranthaman that the Mercedes he bought from Yorktown had been “re-VINned” – in other words, that its original Vehicle Identification Number (“VIN”) had been removed and replaced with the VIN from a different vehicle. Paranthaman asserts in his Statement of Defence that “the vehicle he had purchased was in fact a stolen vehicle”, and that he should accordingly be relieved of any obligation to continue paying for it.

[5] For its part, Yorktown does not dispute that the Mercedes it sold to Paranthaman was re-VINned, but maintains that this was not Yorktown’s fault. Yorktown asserts that it was the victim of a criminal scheme perpetrated by another auto dealer, KK Motors Corporation (“KK Motors”), and a man named Vivekandran Selvamoorthy (referred to in Yorktown’s materials as “Vivek”). Yorktown has brought a third party claim against both KK Motors and Vivek. Yorktown alleges further that Paranthaman was somehow involved in this scheme. In addition, Yorktown has brought a third party claim against the Crown in right of Ontario (“Ontario”), asserting that Ministry of Transportation officials were negligent when they permitted the re-VINned Mercedes to be registered as legitimate.

[6] Yorktown’s third party claims against KK Motors, Vivek and Ontario are still at a very early stage and the third parties’ positions in response to Yorktown’s allegations are not yet known.

[7] RBC wants no part of this increasingly complex multi-party litigation and moves for partial summary judgment of its claims against Yorktown and Paranthaman. RBC does not dispute Paranthaman’s claim that he was sold a stolen car and agrees that its claim against him should accordingly be dismissed. However, RBC seeks summary judgment in its favour against Yorktown. In essence, RBC’s argument is that its contract with Yorktown – the Loan Program Dealer Agreement (“the LPDA”) – specifically contemplated the risk of something like this happening, and assigned this risk to Yorktown by requiring Yorktown to make certain “representations and warranties” to RBC concerning the vehicles it sold that RBC agreed to finance. RBC argues that it ought to be able to get the benefit of its bargain with Yorktown and should not be made to wait while Yorktown, Paranthaman and the third parties litigate who should be held responsible for the apparent re-VINning of the Mercedes.

[8] Yorktown resists RBC’s motion for partial summary judgment on a number of alternate bases, discussed in greater detail below. Most significantly, Yorktown (i) disputes RBC’s interpretation of the terms of the LPDA, and (ii) argues that it would be inappropriate to grant partial summary judgment in RBC’s favour when doing so would not end the litigation between the other remaining parties. [1]

1) Facts and procedural history

a) The Loan Program Dealer Agreement between RBC and Yorktown

[9] In April 2015, Yorktown and RBC entered into a contract – the Loan Program Dealer Agreement (“the LPDA”) – that enables Yorktown to arrange for its customers to obtain vehicle purchase financing from RBC. In broad terms, the agreement establishes a process in which Yorktown enters into conditional sales contracts with its customers and then assigns its rights under these contracts to RBC, in exchange for RBC paying Yorktown the vehicle purchase price, less applicable fees. The net result is that the customer gets a vehicle from Yorktown, Yorktown receives the purchase price from RBC, and RBC acquires the right to receive regular payments of the loan principal and interest from the customer.

[10] The following terms of the LPDA are of particular importance:

10. REPRESENTATIONS AND WARRANTIES

The Dealer [ i.e., Yorktown] represents and warrants the following;

(b) As of the date of the assignment to the Bank [ i.e., RBC] of each Contract [ i.e., a conditional sales contract between Yorktown and a customer for the sale of a particular]:

i) the Goods described in the Contract are free and clear of all claims except those of the Customer;

ii) at least one of the persons indicated as the Customer on the Contract is the registered owner of the Goods;

iii) there has been a bona fide sale of the Goods to the Customer;

vi) the Customer does not have, and will not have at any time thereafter, any defences to payment on the Contract arising from any action or omission of the Dealer or any deficiency in the Goods, nor has any time period for any statutory defence to payment on the Contract been extended by any action or omission of the Dealer;

ix) the dealer will provide to the Bank a copy of the ownership confirming that the title to the Goods has been transferred to one of the persons indicated as the Customer on the Contract within ten (10) days from the date of the execution of the Contract.

12. INDEMNITY

The Dealer shall indemnify and save harmless the Bank … from any and all liabilities, obligations, losses, penalties, claims, costs, expenses, including legal expenses, of any kind whatsoever arising from or relating to any acts, omissions or defaults of the Dealer … which may (i) affect the validity or enforceability of any Contract assigned to the Bank … or (v) be suffered or incurred by the Bank in respect of, or in any way related to: (a) the existence of any defences or rights of set-off of the Customer against the Dealer or the Bank (including against the Bank’s claim on the Contract) which are caused or related to the Goods or to any action or omission of the Dealer; … [or] (c) the Dealer, the manufacturer of the Goods, or any other party, not performing its Warranties …

b) The sale of the Mercedes-Benz to Paranthaman

[11] In September 2016 Paranthaman entered into a conditional sales contract with Yorktown for the purchase of a 2015 Mercedes-Benz SL-Class automobile with a specified Vehicle Identification Number (VIN) identified in the contract. This contract was prepared using a standard form provided by RBC. The total purchase price of the vehicle, including fees and taxes, was $52,345.45, the entire amount of which was to be financed by RBC for 84 months at an annual percentage rate of 7.74%. The contract specified that Yorktown’s interest under the contract would be assigned to RBC, and that Paranthaman would make bi-weekly payments to RBC of $372.95. The contract provided further that title and ownership of the vehicle would not pass to Paranthaman until he had fully paid for the vehicle.

[12] Yorktown has adduced affidavit evidence from a sales representative named Mark Risman, who explains that in September 2016 Vivekandran Selvamoorthy (“Vivek”) asked Yorktown to assist another auto dealer, KK Motors Corp. (“KK Motors”) sell the Mercedes to Paranthaman. KK Motors already had the car but sought Yorktown’s assistance arranging financing for Paranthaman. Yorktown agreed to help, which led to a series of transactions in which Yorktown purchased the Mercedes from KK Motors, resold it to Paranthaman pursuant to the conditional sales contract, and then transferred its interest in the conditional sales contract to RBC. As a result, when Yorktown received payment of the vehicle purchase price from RBC it sent most of the funds to KK Motors and retained only a small amount ($550) as a fee for acting as the middleman in the deal.

c) Subsequent claims that the Mercedes-Benz was a “re-VINned” stolen vehicle

[13] According to RBC’s affidavit evidence, [2] Paranthaman stopped making his bi-weekly payments on or about May 7, 2018, at which point his loan balance stood at $46,241.44. RBC’s affidavit states further that RBC “learned that the vehicle was stolen and revinned on or about July 12, 2018 when Paranthaman, through his lawyer, notified [RBC]”. However, in his statement of defence Paranthaman asserts that he first learned that the vehicle was apparently stolen on November 2, 2018, after he was involved in an accident and was advised by his insurer “that the vehicle was in fact sold as a stolen vehicle”. He asserts further that he “no longer has the vehicle in his possession”. Contrary to RBC’s affidavit evidence, Paranthaman also maintains in his pleadings that he continued to make his loan payments to RBC even after he was advised that the vehicle was stolen.

[14] Yorktown’s affidavit evidence appends a printout from a CBC News report from 2016 describing a York Regional Police investigation into an “alleged auto-theft ring”. The police investigation was dubbed “Project Cyclone”, and the CBC News story includes “a York Regional Police chart showing how Project Cyclone resulted in the arrests of 23 people”. One of the people arrested is identified as Vivekandran Selvamoorthy. Yorktown’s affidavit also appends a more recent news story from September 2018, stating that KK Motors had been suspended by the Ontario Motor Vehicle Industry Council “following an investigation into allegations of forgery, odometer tampering, fraudulent vehicle transfers and illegal sales”. Yorktown’s affiant Mark Risman asserts further that:

After being served with the statement of claim in the within action, Yorktown Motors learned that Vivek was arrested and pleaded guilty for the fraudulent conduct associated with the Vehicle, which was part of the crime ring investigated by the Police. Meredith Bacal, counsel for Yorktown Motors, spoke with Constable Greg Godden of the Police on the phone who relayed this information to her. Ms. Bacal informed me of this conversation, which I believe to be true.

d) Procedural History

[15] RBC commenced its simplified procedure action against Paranthaman and Yorktown on October 9, 2018. In November and December 2018 Yorktown and Paranthaman delivered their respective Statements of Defence and Crossclaim. The within motion by RBC for summary judgment was filed on January 14, 2019 and made returnable on February 14, 2019. Yorktown’s third party claim against KK Motors, Vivekandan Selvamoorthy and the Crown in right of Ontario (“Ontario”) was issued on January 23, 2019. As of February 7, 2019 – a week before RBC’s summary judgment motion was heard – neither KK Motors nor Vivek had yet been served with Yorktown’s third party claim, although Yorktown anticipated that KK Motors would be served prior to the hearing. When the motion was heard on February 14, 2019 none of the three third party defendants – KK Motors, Vivek and Ontario – had yet filed Statements of Defence.

2) Analysis

a) The limits on partial summary judgment

[16] Rule 20 of the Ontario Rules of Civil Procedure permits motions for summary judgment “on all or part” of a claim in a statement of claim. RBC’s motion is not “partial” as far as it is concerned, since the motion would, if successful, fully dispose of RBC’s claims against both Paranthaman and Yorktown and entirely remove RBC from any ongoing litigation. However, this would not be dispositive of the litigation as a whole, since Paranthaman and Yorktown’s crossclaims against one another and Yorktown’s third party claims against KK Motors, Vivek and Ontario would all continue.

[17] The Ontario Court of Appeal has cautioned against granting summary judgment too readily in situations where the litigation will continue in any event. In Butera v. Chown, Cairns LLP, 2017 ONCA 783, Pepall J.A. explained (at para. 34):

A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner.

Courts are required to consider whether there is a “risk of duplicative or inconsistent findings at trial” and whether granting summary judgment is “advisable in the context of the litigation as a whole”. [3]

[18] RBC does not dispute that granting summary judgment in its favour would not end the litigation as a whole. However, RBC argues that its claims against Yorktown and Paranthaman can be “readily bifurcated” from the litigation that would continue between Yorktown, Paranthaman and the third parties, which would become “the main action” once RBC is out of the picture.

[19] RBC’s argument rests on two main propositions. First, RBC maintains that its contract with Yorktown makes Yorktown wholly responsible for any unforeseen problems arising that prevent Paranthaman from getting what he contracted for, namely, legal title to the Mercedes. Second, RBC asserts that if the vehicle Paranthaman bought from Yorktown was indeed stolen property, the conditional sales contract was void from the outset, since in this scenario Yorktown never acquired title over the vehicle that was capable of being passed to Paranthaman. [4] According to RBC, the risk that Yorktown might inadvertently sell a customer a stolen car falls squarely within the range of risks RBC and Yorktown contemplated when they entered into the LPDA, and which they agreed would be borne by Yorktown.

b) The terms of the LPDA

[20] Yorktown disagrees with RBC’s interpretation of the terms of the LPDA, relying in particular on the language of the Para. 12 “Indemnity” provision, which states that Yorktown will indemnify RBC for losses, etc., “arising from or relating to any acts, omissions or defaults of [Yorktown]”. Yorktown argues that since the apparent re-VINning of the car it sold to Paranthaman was not its fault, RBC’s resulting losses do not “arise from or relate to any act, omission or default” on Yorktown’s part. As Yorktown states in its factum:

RBC has not been able to point to a single wrongful act, omission or default on the part of Yorktown Motors. … The fact that Yorktown Motors pleads that the Vehicle was re-VINned and that there was an elaborate crime ring that the police dismantled, does not constitute an admission of an “act, omission or default” of the dealer.

[21] In my view, the fatal flaw in Yorktown’s argument is that the Para. 12 “Indemnity” provision of the LPDA is not limited to “wrongful” conduct by Yorktown, but can also be triggered by the wholly innocent failure of one of Yorktown’s “representations and warranties” under Para. 10 of the LPDA. When Yorktown assigned its rights under its conditional sales contract with Paranthaman to RBC, Para. 10 of the LPDA provided that Yorktown was “represent[ing] and warrant[ing]” that certain things were true, including:

• that the Mercedes sold to Parathaman was “free and clear of all claims except that of [Paranthaman]”;
• that there had been a “bona fide sale” of the vehicle to Paranthaman; and
• that Paramanthan would not have “any defences to the payment on the Contract arising from … any deficiency in the Goods”.

If the Mercedes turned out to actually be a stolen and re-VINned vehicle, at least some of these representations and warranties would not be satisfied: (i) the car’s true owner would have a proprietary claim over the vehicle; (ii) Yorktown would not have held valid title to the vehicle and accordingly could not have made a “bona fide sale” of the car to Paranthaman; and (iii) the re-VINning of the vehicle would at least arguably qualify as a “deficiency in the Goods” that would give Paranthaman a defence to payment on the contract.

[22] On a plain reading of the LPDA, the failure of any of Yorktown’s “representations and warranties” in Para. 10 would appear to qualify as a “default” for the purposes of the Para. 12 Indemnity provision. There is nothing in the contractual language that suggests that Yorktown’s defaults must be “wrongful” in the sense of being attributable to Yorktown’s negligence or misconduct. In my view, the terms of the LPDA support RBC’s argument that the contract was designed to shift certain risks – including the risk that a vehicle RBC agreed to finance turned out to be stolen – entirely away from RBC and entirely onto Yorktown’s shoulders.

c) Can RBC’s claim against Yorktown under the LPDA be “readily bifurcated” from the ongoing litigation?

[23] I also agree with RBC that the resolution of its contractual claim against Yorktown under the LPDA is a matter that is at least potentially capable of being “readily bifurcated” from the other issues that would remain in dispute between the other parties. Since Yorktown’s obligations under the LPDA to indemnify RBC are not fault-based, granting judgment to RBC against Yorktown would not preclude Yorktown from succeeding either in its crossclaim against Paranthaman or in its third party claims against KK Motors, Vivek and Ontario. Equally, an order dismissing RBC’s claim against Paranthaman would not necessary imply anything about Paranthaman’s potential liability to Yorktown under Yorktown’s crossclaim. If the Mercedes is indeed stolen property Paranthaman’s contract to purchase the vehicle would be void ab initio, and this would remain true even if Paranthaman were also somehow involved in a scheme by KK Motors and Vivek to defraud Yorktown, as Yorktown alleges.

[24] However, Yorktown objects that RBC has provided no evidence that the car was actually stolen. RBC, in response, points out that Yorktown’s own pleadings and written submissions are replete with allegations and assertions that the Mercedes was re-VINned and that Yorktown was the victim of an “elaborate crime ring” that was trafficking in stolen cars. As RBC’s counsel put it in his oral submissions, Yorktown’s pleadings and arguments “firmly committed [Yorktown] to a position”, namely, that the car it sold to Paranthaman was indeed stolen and re-VINned.

[25] In my view, both arguments have some merit. Yorktown is correct that there is no actual evidence on the record before me establishing that the Mercedes is, in fact, a stolen vehicle. Rather, the only evidence on this point consists of the following statements in the parties’ affidavits:

• RBC’s affiant Kim Fitzgerald asserts that Paranthaman’s counsel advised RBC “that the vehicle was stolen and revinned”. However, her affidavit does not reveal Paranthaman’s counsel’s basis for believing this, nor does it explain whether Ms. Fitzgerald received this information personally or whether she learned about it from some other RBC employee;
• Yorktown’s affiant Mark Risman states that he was informed by Yorktown’s counsel that she had in turn been advised by a York Regional Police officer, Cst. Godden, that “Vivek was arrested and pleaded guilty for the fraudulent conduct associated with the Vehicle, which was part of the crime ring investigated by the Police.” However, the specific offences to which Vivek pleaded guilty are not disclosed, nor are the facts he admitted to when entering these pleas.

[26] For a number of reasons, neither affidavit is capable of establishing as fact that the Mercedes is a stolen vehicle. First, the assertions in both affidavits involve multiple layers of hearsay. Second, even if the hearsay assertions in the affidavits are taken to be true, they fall short of establishing anything conclusive about the actual legal status of the Mercedes. Paranthaman’s lawyer may very well believe that the Mercedes is a “stolen and revinned” vehicle – consistent with his client’s pleadings – but his reason for believing this remains entirely unknown. Likewise, even accepting the truth of Cst. Godden’s assertion that Vivek has pleaded guilty to some kind of “fraudulent conduct associated with the Vehicle”, this assertion falls short of establishing that the vehicle was stolen. There are any number of forms of “fraudulent conduct” Vivek could have engaged in and admitted to that would not require the vehicle itself to be stolen goods, and that would not render the sales contract between Yorktown and Paranthaman void ab initio, as opposed to merely potentially voidable (see, e.g., Fairfield v. Low). Indeed, even if there was a proper evidential record establishing as fact that the Mercedes had been re-VINned – which there is not – it would not automatically follow from this that the car is necessarily stolen property. As the Ontario Court of Appeal noted in 495793 Ontario Ltd. (Central Auto Parts) v. Barclay, 2016 ONCA 656 at para. 72:

The case was replete with technical aspects of both legal and factual issues, such as what is a VIN; what parts of a vehicle constitute a “motor vehicle” under the Code; what parts contain a VIN; and the legitimate reasons in the auto recycling industry for transferring a VIN. The evidence disclosed a fundamental difference of opinion between automotive recyclers and the police about these matters.

[27] RBC may also be correct that Yorktown cannot properly resile from the position it has taken in its own pleadings and arguments concerning the status of the Mercedes. However, the problem RBC faces is that none of the third parties Yorktown has brought into the litigation will be similarly constrained. Accordingly, it is conceivable that either KK Motors or Vivek will dispute that the Mercedes was re-VINned and/or that it is stolen goods. While Vivek may be constrained by the admissions he made at the time of his guilty plea, there is no information on the record as to what these admissions actually were.

[28] In my view, on this sparse record I cannot be certain that there is no risk of inconsistent findings being made at trial if RBC was now granted summary judgment against Yorktown and its claim against Paranthaman was dismissed. Evidence could conceivably emerge at trial demonstrating that the Mercedes was neither re-VINned nor stolen, and that Paranthaman accordingly remains bound by the conditional sales contract and Yorktown should not have been required to indemnify RBC under the LPDA. Alternatively, evidence could emerge at trial establishing that the Mercedes was not stolen but was re-VINned for some other reason, legitimate or otherwise. Under any of these latter scenarios the conditional sales contract may turn out to be merely voidable rather than void ab initio, and the question of whether Yorktown is still obliged to indemnify RBC under the LPDA may then turn both on the particular facts that are established and on the positions taken by the other parties. [5] While none of these alternative scenarios may be particularly likely, it is impossible to be sure of this in a factual vacuum.

[29] In this regard, it is well-established that a party who seeks summary judgment in its favour must “put its best foot forward” and “lead trumps or risk losing” (see, e.g., Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 26, aff’d 2014 ONCA 878). As the moving party, it was RBC’s obligation to either prove the essential facts on which its argument depends or demonstrate that they are not and would not be in dispute at trial. As Dunphy J. explained in 2313103 Ontario Inc. v. JM Food Services Ltd., 2015 ONSC 4029 at para. 40:

In bringing a motion for summary judgment, the court is entitled to assume that both parties have put before the court all of the evidence they would intend to adduce at trial (even if not in the same form) that relates to the issues for decision on the motion. Ambush and surprise have no legitimate place in modern litigation, but this is particularly so in motions for summary judgment where the entire action or a substantial part of it may be disposed of in favour of one or the other party. Summary judgment is no place for a party to look to keep powder dry for another day and it is rather late in the process to sit down and ensure the issues are thoroughly understood.

[30] Accordingly, in my view RBC’s motion for summary judgment has been brought prematurely and/or with insufficient evidential support. Once the pleadings in Yorktown’s third party action have closed, RBC may be in a position to satisfy the test for partial summary judgment if it is clear that none of the parties will be contesting the claim that the Mercedes is stolen property. Alternatively, RBC may be able to meet its burden by adducing further and better evidence that the car was indeed stolen and that Paranthaman’s contract to purchase the vehicle was accordingly void. However, on the existing record I cannot find that RBC has satisfied its burden of demonstrating that there is no risk of inconsistent factual findings being made at any subsequent trial.

[31] RBC’s motion for summary judgment is therefore dismissed.

[32] When this motion was argued I indicated that after I released my decision I would invite the parties to provide written submissions on costs. I would ask that Yorktown provide their written costs submissions within two weeks of the date of the release of this judgment. RBC will then have two weeks to file its response, and Yorktown may then file a reply within one week.

DAWE J.

Released: March 22, 2019

ONTARIO SUPERIOR COURT OF JUSTICE ROYAL BANK OF CANADA Plaintiff/Moving Party – and – NISAN PARANTHAMAN and 1458875 ONTARIO CORPORATION o/a YORKTOWN MOTORS Defendants/Respondents REASONS FOR JUDGMENT DAWE J.

Released: March 22, 2019

Footnotes:

[1] Paranthaman did not participate in this motion.

[2] Affidavit of Kim Fitzgerald, sworn January 4, 2019.

[3] Butera, supra at para. 28; see also Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450 at para. 34-35; Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922 at para. 4.

[4] See, e.g., 89446 Canada Ltd. et al. v. Yang et al.; Genelcan Ltd. v. Yang.

[5] For example, if it emerges that the Mercedes is not stolen goods but was re-VINned after it was damaged in an accident, Paranthaman could conceivably elect to uphold the contract and keep the vehicle but seek damages from Yorktown.