Court File and Parties
COURT FILE NO.: CV-18-597937 DATE: 20190814 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: David G. Durno, Plaintiff AND: TD Waterhouse Canada Inc. and The Toronto-Dominion Bank, Defendants
BEFORE: Pollak J.
COUNSEL: Kimberly Boara Alexander and Jessica Buckerfield, for the Plaintiff David Hausman, for the Defendants
HEARD: May 23, 2019
Endorsement
[1] The moving parties TD Waterhouse Canada Inc. and The Toronto-Dominion Bank move to strike out paragraphs 1(a)(v), 8, 68, 69, 73 and 78 of the Plaintiff (Mr. Durno's) Statement of Claim (“Disputed Claims”) on the grounds that they:
(a) fail to disclose a reasonable cause of action; and
(b) constitute an abuse of process and an improper collateral attack on the Plaintiff’s settlement (“Settlement Agreement”) with Investment Industry Regulatory Organization of Canada (“IIROC”) and IIROC’s decision to approve the settlement agreement (“Approval Decision”).
[2] The issues on this motion are:
(a) whether the Disputed Claims advanced in the Disputed Paragraphs should be struck as an impermissible collateral attack on the Settlement Agreement and Approval Decision as an abuse of the court's process; and
(b) whether the Disputed Claims fail to disclose a reasonable cause of action.
[3] The parties agree that applicable Rules of Civil Procedures on this motion are:
(a) Rule 21.01(1)(b), striking out a pleading on the ground that it discloses no reasonable cause of action; and
(b) Rule 21.01(3)(d), staying or dismissing this action on the ground that the action is frivolous or vexatious or is otherwise an abuse of the process of the court"; and
(c) Rule 25.11, striking out all or part of a pleading, with or without leave to amend, on the ground that the pleading, "(b) is scandalous, frivolous or vexatious, or (c) is an abuse of the process of the court."
[4] The moving parties submit that the Disputed Claims are a collateral attack on the Settlement Agreement and the Approval Decision. Paragraph 8 of the Statement of Claim pleads that the TD Defendants exposed the Plaintiff "to unreasonable risk of regulatory review and potential sanction." Paragraphs 69 and 73 of the Claim allege that the TD Defendants did not and should have told him that he was engaged in a pattern of trading that generated excessive commissions for him.
[5] The TD Defendants argue that the Disputed Claims seek to withdraw and relitigate the Plaintiff’s admissions he made in the Settlement Agreement with IIROC as well as the findings and conclusions made in the Approval Decision. The Disputed Claims are characterized by the TD Defendants as alleging that they owe a duty to the Plaintiff to have prevented him from engaging in his regulatory misconduct. The Plaintiff admitted to specific misconduct in the Settlement Agreement. Any attack on that admission and finding in subsequent approval discussion Claim must therefore be struck as an abuse of process.
[6] The Defendants argue that the Plaintiff’s own misconduct caused him to be subject to regulatory sanction and that the Disputed Claims attempt to retract his admissions of wrongdoing and relitigate the conclusions and underlying findings made in the Approval Decision.
[7] The Plaintiff submits that in the Settlement Agreement he did not admit to wilful or intentional misconduct, or unsuitable trading or “churning” or “excessive trading”. Rather he admitted that he did not adequately consider the overall impact of the transaction costs of active trading in two client accounts and, as a consequence, he failed to adequately consider and address the best interests of those two clients. He also relies on the fact that the commissions charged to these clients were at or below the amounts authorized by TD’s policies and procedures.
[8] He submits that the TD defendants are legally required to have clear rules and standards as well as a system of supervision in place to enable correction and identification of instances of inadvertent non-compliance with regulations, firm policies and procedures. TD has admitted that it failed to adequately supervise his trading, failed to identify any issues with his trading and did not ask him questions regarding his trading in the two relevant accounts in its own Settlement Agreement with IIROC.
[9] He pleads that it was a term of his employment that TD would comply with its regulatory obligations. Had TD fulfilled its obligations, he would not have made the inadvertent error.
[10] The plaintiff argues that he does not challenge the Settlement Agreement but asks for damages for the losses that he incurred as a result of TD’s alleged contractual breaches of his employment agreement.
[11] His claim is for reimbursement of all costs and out of pocket expenses incurred as a result of TD’s breach. He has agreed to withdraw his claim with respect to the fine he has paid as a result of the Settlement Agreement.
[12] He pleads that he was employed by TD for 19 years, with a clean regulatory record and at all times believed he complied with TD’s directions, policies and guidelines. Until the events leading to the termination of his employment and settlement with IIROC, TD had never raised any concerns with his management of his book of business.
[13] The plaintiff’s admissions in the Settlement Agreement are summarized as follows:
“22. Overall, between 2010 and 2015, SS’ and MH’s costs would have been significantly lower in fee-based accounts. The Respondent did not adequately consider the overall impact of the transaction costs on the profits realized in SS and MH’s accounts.
For new issue securities, the issuer aid a commission on purchases which was larger than the client would have paid on a secondary issue. This was beneficial to the Respondent. The client paid no commission on the purchase of new issue securities.
In recommending the active trading described in this Settlement Agreement in new issues and other securities, the Respondent failed to adequately consider and address the best interest of SS and MH.
By engaging in the conduct described above, the Respondent committed the following contravention of IIROC’s Rules:
Between 2010 and 2015, the Respondent failed to adequately consider and address the best interests of two clients, contrary to Dealer Member Rule 29.1 and, after March 26, 2012, Dealer Member Rule 42.2.”
[14] There are no references to “excessive trading” or churning”, in his Settlement Agreement.
[15] An IIROC Panel approved the Plaintiff’s Settlement Agreement.
[16] In his pleading the Plaintiff does not deny that he failed to adequately consider the impact of the transaction costs of the two clients. He claims that if TD had alerted him any issues in accordance with its regulatory obligations and in accordance with the terms of his employment contract, he would have followed any lawful direction from TD and would therefore not have been the subject of an IIROC investigation.
[17] The parties agree that on this motion, the facts as pleaded must be considered proven unless they are manifestly incapable of proof. The court must be generous and err on the side of permitting the claim to proceed to trial.
[18] On this Rule 25.11 and 21.01(1)(b) motion, the merits of the claim can not be considered. This pleadings motion is brought before the moving parties have delivered a defence. Evidence on the motion must be limited to the question of whether the claim is frivolous and vexatious and whether it is plain and obvious that the claim cannot succeed. Evidence on the motion should be considered only to decide whether the pleading should be struck as having no chance of success because it is frivolous and vexatious or an abuse of process.
[19] The parties also agree on the legal elements to be established to apply the doctrine of “Abuse of Process”.
[20] TD’s position on this motion is that the terms of employment as pleaded are inconsistent with the documents that it has attached to its motion record (extracts from TD’s Policies and procedures Manual and a Standard Terms and Conditions document from 1997) and are the therefore incapable of proof and that such a term is “plainly unreasonable in the context of the securities industry.” As well, although TD relies on a provision from its Policies and procedures Manual and from its “Client Service Standard.”, these documents are not referred to in the Claim and are not introduced through affidavit evidence properly before this court. TD can not rely on contradictory evidence about its business efficacy or the intentions of the parties.
[21] The Plaintiff also points out that there was no provision in his Settlement Agreement that he could not seek damages from another party. In the Theralase Technologies Inc. v. Roger Dumoulin-White, 2018 ONSEC 8, the Settlement Agreement had a provision the party had to:
(g) pay all amounts payable by him under this Agreement, the order and the Dumoulin-White Undertaking either from his personal assets, without recourse to any insurance, indemnification or similar provision or, if such a provision is relied on, at no cost to Theralase, including in the form of increased insurance premiums.
[22] The Plaintiff submits that the Disputed Claims are not an abuse of process or a collateral attack on the Settlement Agreement or the Approval Decision- there is no re-litigation, no request for inconsistent findings and no challenge to the factual underpinnings of either the Settlement Agreement or IIROC Decision. I agree with these submissions.
[23] I find as well that the principle of Ex Turpi Causa Non Oritur Actio is inapplicable to this case and I find that the Disputed Claims pleading supports for a claim for breach of contract. I find that the Disputed claims can not be characterized as a collateral attack on the Settlement Agreement or Approval Decision. There is no collateral attack on the Settlement Agreement or the Approval Decision as a result of the plaintiff’s claim. There is therefore no abuse of process as a result of the Disputed Claims.
[24] To conclude, the Disputed Claims all relate to the Plaintiff’s claim for breach of contract. The Plaintiff pleads that he worked at TD pursuant to a contract of employment. It is alleged that it was a term of his employment with TD that it would comply with its common law, contractual and regulatory obligations to implement appropriate compliance policies and procedures in order to properly supervise and monitor the management of client accounts by its advisors and to alert them in the event that any of their activities raised regulatory concerns. The Disputed Claims are that TD breached its obligation to adequately train and supervise the Plaintiff. As a result of TD’s breach, the plaintiff has incurred the damages he claims. I can not find that TD has satisfied its burden of proving that it is plain, obvious and beyond a reasonable doubt that his claim can not succeed.
[25] TD’s motion is therefore dismissed.
Costs
[26] The parties have reached an agreement on costs at the hearing of this matter. The successful party, the Plaintiff, is awarded costs on a partial indemnity basis equal to $20,000 in accordance with the agreement of the parties.
[27] If the successful Plaintiff wishes to make submissions that costs on a higher scale should be awarded and the parties are unable to agree on such costs, they may make brief written submissions to me no longer than three pages in length. The Plaintiff submissions are to be delivered by 12:00 p.m. on August 23, 2019, and the Defendants’ submissions are to be delivered by 12:00 p.m. on September 3, 2019. Any reply submissions are to be delivered by 12:00 p.m. on September 6, 2019.
[28] Submissions are to be delivered to Room 170, 361 University Avenue or via email to my assistant. After August 28, 2019, if no submissions are submitted for costs, the matter will be considered at an end and the file returned to the motions’ office.
Pollak J. Date: August 14, 2019