Court File and Parties

COURT FILE NO.: CV-19-624259

MOTION HEARD: 20191210

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sean Colangelo, Plaintiff

AND:

Royal Mutual Funds Inc. and Royal Bank of Canada, Defendants

BEFORE: Master Jolley

COUNSEL: Christopher Hunter, Counsel for the Moving Party Defendants

Julia Wilkes, Counsel for the Responding Party Plaintiff

HEARD: 10 December 2019

Reasons for Decision

[1] The plaintiff was a commission-based investment and retirement planner (“IRP”) employed by one or both of the defendants from May 2015 until January 2019. He alleges that in January 2019 the defendants called him into a meeting under false pretenses and, once he was there, alleged that he had falsely claimed commissions. The plaintiff responded that he had always followed the defendants’ policies on commission under a particular category of compensation which the defendants had always reviewed and approved. The defendants then alleged that the plaintiff had violated numerous MFDA rules. At the end of the meeting and as a result of being pressured, the plaintiff says that he advised the defendants that he would be leaving the corporation effective immediately. Some months later, he commenced this action for constructive dismissal and related damages.

[2] In the statement of claim, the plaintiff pleads the details of two settlements that occurred between the defendants and the OSC, one in 2017 and one in 2018. The statement of claim first includes a heading entitled “RMFI [Royal Mutual Funds Inc.] Sanctioned by OSC for Inadequate Supervision” and thereafter, in paragraph 13-16 inclusive, alleges that, as a result of inadequacies in its systems of controls and supervision, clients paid the defendants excess fees. As a result, RMFI was disciplined and required to provide the OSC with revised written policies and procedures responsive to the issues raised by the OSC including the need to establish enhanced control and supervision procedures.

[3] The plaintiff includes a second section entitled “RMFI Sanctioned by OSC for Inducing FPIRPs [Financial Planner, Investment & Retirement Planners] to Sell Proprietary Mutual Funds” and, in the following paragraphs 28-30 inclusive, pleads the facts surrounding the conduct that led to that OSC investigation and ultimate settlement. The bracketed portion of paragraph 18 references this second sanction.

[4] The defendants argue that these paragraphs violate Rule 25.11 and should be struck. To succeed, the defendants must establish that it is plain and obvious that those portions of the pleading are frivolous, vexatious or an abuse of the court’s process (Miguna v. Toronto Police Services Board 2008 ONCA 799 at paragraph 34).

[5] The defendants argue that these paragraphs are prejudicial and will delay the fair trial of the action. Further they are an abuse of process as they “open the door to prolonged and potentially abusive discoveries which do not address the real issues between the parties” (Lysko v. Braley 2004 CanLII 40666 (ON SC), [2004] O.J. No. 4727 (S.C.J.) at paragraph 24). The defendants argue that, as the pleading stands, the plaintiff could examine the defendants on their dealings with the OSC up to and including the two settlements, which would not advance the plaintiff’s cause of action. They further argue the paragraphs are scandalous and vexatious as they are irrelevant to the causes of action pleaded. There is no connection between these OSC sanction allegations and the plaintiff’s claims for constructive dismissal and punitive damages.

[6] The plaintiff alleges that his client base was reduced in a manner that violated the Ontario Human Rights Code, that the defendants’ investigation and ultimate meeting with him resulted in a poisoned work environment and that the defendants made misrepresentations about him to his regulators, which resulted in him being unable to work in his field. I agree with the defendants that there is no nexus pleaded between the impugned paragraphs and the plaintiff’s cause of action and that they are irrelevant as a result. Further, the facts alleged open up the defendants to being examined on the issues with the OSC, their negotiations with the regulator, their motivation for the settlement, etc. None of those issues inform the lis between these parties. Nor are they saved as being characterized as factual narrative as they do not assist in understanding the plaintiff’s allegations as they are currently pleaded.

[7] Plaintiff’s counsel argued before me that the theory of the plaintiff’s case is that the defendants’ recent regulatory history with the OSC impacted how the defendants dealt with the plaintiff. It will be argued that it was because of that recent history that the defendants were heavy-handed or unfair in their investigation of the plaintiff, in their conduct of the investigation/termination meeting, including not being open to hearing any explanations the plaintiff might have proffered and in making the representations they did to the OSC and the MFDA about the plaintiff after his termination/resignation. Counsel conceded this theory was not pleaded. Paragraph 70 of the statement of claim alleges that “the defendants’ flawed investigative process and post-termination conduct was calculated and intended to induce Colangelo to leave without severance.” It does not raise any additional cause of the flawed process, including this theory that it was as a result of the defendants’ recent go rounds with the OSC. Absent any nexus, the paragraphs are irrelevant and appear to be added only for colour.

[8] Plaintiff’s counsel indicated before me that the plaintiff did not intend to delve into any conduct that led to the OSC settlements or any negotiation around or rationale for those settlements and undertook not to examine on those areas if the pleading were allowed to stand. The focus of the plaintiff’s argument is intended to be on the defendants’ conduct post the settlement and, in particular, its compliance or pressure to comply with the requirement to establish and train on enhanced control and supervision procedures. This admission that the events that led up to the OSC settlement need not be examined upon highlights that these paragraphs are not relevant to the issues the plaintiff intends to raise.

[9] As in Caras v. IBM Canada Limited 2004 CarswellOnt 2897, the court struck those paragraphs of a claim that raised the negotiations between IBM and the plaintiff’s former employer and their motivation behind including a particular contract term in an agreement. The court held that that evidence would have no bearing on the plaintiff’s action which concerned whether the contract term was binding on her. Similarly here, the negotiations between the defendants and the OSC are not relevant. What might be relevant is the impact those settlements had on the defendants’ treatment of the plaintiff.

[10] In the event these paragraphs were ordered struck, plaintiff’s counsel sought leave to amend. The defendants argue that leave should not be granted as the new procedures required by the OSC cannot be relevant to the plaintiff’s allegations in any event. The procedures dealt with customer fees’ issues, while the allegations against the plaintiff concern his failure to comply with the IRP compensation plan that was in place, an entirely separate issue. The difficulty at this early stage is that the pleading does not limit the complaints the plaintiff says were levelled at him to just a breach of the IRP compensation plan. He also alleges that the defendants alleged in the termination meeting that he had committed numerous violations of the MFDA rules. Whether those included or did not include miscalculation of client fees is not clear at this stage. I cannot find on this record that the procedures required of the OSC are categorically irrelevant to the plaintiff’s claim, were they properly pleaded.

[11] In the circumstances, I strike the heading above paragraph 13, paragraphs 13-16 inclusive, the bracketed portion of paragraph 18, the heading above paragraph 28 and paragraphs 28-30 inclusive, with leave to amend.

[12] Having reviewed both parties’ costs’ outlines, I find the all-inclusive sum of $6,000 to be a fair and reasonable amount for the plaintiff to pay the defendants, payable within 60 days of today’s date.

Master Jolley

Date: 12 December 2019