SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MOHAMMAD GHORBANKARIMI, Plaintiff
AND:
SÉBASTIEN BERGERON, PHILLIPPE THIBAULT, MATTHEW BELBIN and FOLKS VFX ULC, Defendants
BEFORE: Cavanagh J.
COUNSEL: Ian Matthews and Teagan Markin, for the Folks VFX ULC, Moving Party
Matthew Diskin and Meredith Bacal, for the Plaintiff, Responding Party
Howard Manis for Defendants Sébastien Bergeron, Phillippe Thibault, and Matthew Belbin
HEARD: November 6, 2020
ENDORSEMENT
Introduction
1This action is brought by the plaintiff, Mohammad Ghorbankarimi, against three individual defendants and a corporate defendant, Folks VFX ULC, for damages for breach of contract, conversion, fraudulent misrepresentation, oppression, unjust enrichment and quantum meruit and related relief. The plaintiff pleads that the individual defendants were the shareholders of the corporate defendants when the facts giving rise to the causes of action pleaded occurred.
2The corporate defendant moves for an order (i) pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure, striking out the statement of claim as against it on the ground that it discloses no reasonable cause of action, and (ii) pursuant to rule 21.01(3)(a), dismissing or permanently staying the oppression remedy claims against it on the ground that this Court lacks subject matter jurisdiction.
3For the following reasons, this motion is granted.
Facts and causes of action pleaded in statement of claim
4The plaintiff’s claims are founded on the following facts pleaded in the statement of claim:
a. The plaintiff is a writer, producer, director and visual effects supervisor who works in film and television. In April 2019, the plaintiff entered into discussions with the three individual defendants who are shareholders of a visual effects (VFX) business based in Canada and Colombia known as Folks VFX. The plaintiff was being courted by the individual defendants to work for Folks VFX in Toronto order to grow its studio there (paras. 2-3).
b. At the time that the plaintiff was approached by the defendants, Folks VFX was grooming itself to be acquired by FuseFX, a Los Angeles, California based VFX business and a major player in the VFX world. The only impediment to the proposed acquisition was that FuseFX required that Folks VFX have a significantly more robust and profitable Toronto studio than it did in late 2018. During the discussions between the plaintiff and the individual defendants, they informed him that the acquisition of Folks VFX by Fuse FX was contingent upon Folks VFX substantially increasing the size and revenue of its Toronto operation (paras. 6-9).
c. In order to induce the plaintiff to assume the task of leading and growing the Toronto studio, the individual defendants proposed that he would receive both the standard fee for project-based work to lead for Folks VFX’s Toronto studio and that he would receive 50% of the equity in the Toronto business, on the basis that he would make a shareholder’s advance to the company (para. 10).
d. After negotiating over the shareholder advance, the parties agreed that the plaintiff would receive a 25% ownership interest in Folks VFX’s Toronto Studio (defined in the statement of claim as the “Equity”) without a financial contribution in respect of his work to build the studio beyond the work he would do as a VFX supervisor for specific projects (he would receive his standard fee for project-based work) (para. 11). This agreement is defined as the “Agreement” in the statement of claim.
e. Under the Agreement, the plaintiff was promised that the Equity would be transferred by the individual defendants to him proportionate to their relative shareholdings (para. 12).
f. The Agreement was verbal and was completed in May 2019. Under the Agreement, the defendants undertook to have their solicitor prepare the necessary documentation to effect the formal paperwork to transfer the Equity. At the time the Agreement was formed in May 2019, the plaintiff became a beneficial owner of the Equity (para. 13).
g. In good faith and in reliance upon the Agreement and the promise of receiving the Equity thereunder, the plaintiff proceeded to induce a number of top VFX artists to join Folks VFX as employees. He did so at great professional risk, given that many of these employees left other VFX studios to work with the plaintiff, given his industry reputation as a leader in the field (para. 14).
h. After the Agreement was made, the defendants made a number of excuses for not having their solicitor issue any paperwork around the Agreement to effect the grant of Equity. The defendants honoured the Agreement as it related to the fee for production related services component of the Agreement and the plaintiff was paid his standard fee for the project-based work he performed (para. 15).
i. Between April and December 2019, the plaintiff grew the Folks VFX Toronto studio to 44 employees and more than $10 million in annualized revenue (the revenue generated during the plaintiff’s short tenure from May to December 2019 exceeded $9 million). This was the lynchpin for the acquisition of Folks VFX by FuseFX (para. 16).
j. On December 6, 2019, the defendants informed the plaintiff that the legal paperwork to effect the Equity transfer stipulated by the Agreement was finally drawn up. The paperwork was shown to the plaintiff, but he was not provided a copy. Contrary to the Agreement, the paperwork prepared by the defendant stated that the plaintiff would only receive 20% of the equity in the Toronto studio. The plaintiff insisted that the defendants honour the Agreement and that the agreed upon 25% Equity be transferred to him. After further discussions on December 6, 2019, one of the individual defendants, Mr. Bergeron, on behalf of the defendants, confirmed that he would instruct the defendants’ solicitor accordingly. The plaintiff and Mr. Bergeron shook hands and Mr. Bergeron confirmed that the plaintiff would receive the originally-agreed 25% Equity in Folks VFX’s Toronto studio (paras. 17-18).
k. Both before and after the December 6, 2019 meeting, the individual defendants made multiple representations to third parties that the plaintiff was a “partner” (i.e. owner) in Folks VFX and/or Folks VFX’s Toronto office (para. 19).
l. The defendants never intended to live up to the Agreement as it relates to the Equity. Between April and December 2019, the plaintiff was frequently told by the individual defendants and by an employee of Folks VFX that the paperwork that would implement the Equity transfer was being prepared. This was manifestly not true, and the only paperwork that was shown to the plaintiff (but not given to him) represented different terms (para. 20).
m. The defendants induced the plaintiff to build the Toronto studio for them. He made arrangements for new leased premises and the addition of 34 new employees at great professional risk. The plaintiff’s engagement attracted major productions to work with Folks VFX (para. 21).
n. The individual defendants then sold the Folks VFX business to Fuse FX without transferring the Equity to the plaintiff as required by the Agreement, thereby appropriating the fruits of his labour in building the Folks VFX Toronto office and the value of his reputation (in terms of talent acquisition and production work).
o. On or about April 6, 2020, the individual defendants sold Folks VFX to Fuse FX, including the plaintiff’s Equity. It appears that the transaction was undertaken by way of a share sale (paras. 22 and 24).
p. Given the revenue generated through the plaintiff’s work, a substantial purchase price was paid in connection with the sale of the Folks VFX business, estimated to be well in excess of $20 million, though the particulars are currently unknown to the plaintiff (para. 23).
q. Folks VFX Inc. (originally a federally incorporated company) was continued into British Columbia where it became the defendant Folks VFX ULC in connection with the Fuse FX acquisition. The corporate defendant appears to own the Folks VFX Toronto studio business (para. 25).
r. The sale of Folks VFX to FuseFX was undertaken in disregard of the plaintiff’s rights under the Agreement and his Equity interest in the Folks VFX Toronto studio (para. 26).
5The plaintiff claims:
a. Damages resulting from breach of the Agreement and for conversion of his Equity by the defendants,
b. In the alternative, damages as a result of failure to honour his beneficial ownership of the Equity pursuant to the Canada Business Corporations Act, RSC 1985, c. C-44 including s. 241 and, in the alternative, British Columbia’s Corporations Act, S.B.C. 2002, c. 57, including section 227;
c. In the further alternative, damages for fraudulent misrepresentation as related to the promise that he would be granted the Equity;
d. In the further alternative, damages under the doctrines of unjust enrichment and quantum meruit.
Analysis
6There are three issues on this motion: (a) whether the corporate defendant is precluded from bringing this motion because of a procedural agreement made with the plaintiff; (b)whether the statement of claim should be struck out on the ground that it discloses no reasonable cause of action, and (c) whether the oppression claim should be dismissed or permanently stayed on the ground that this Court lacks subject matter jurisdiction.
7I address each issue in turn. In my analysis, I use the terms “Agreement” and “Equity” according to the meanings assigned to them in the statement of claim.
Is the corporate defendant precluded from bringing this motion because of a procedural agreement made with the plaintiff?
8The plaintiff submits that counsel for the corporate defendant (as well as the individual defendants) and counsel for the plaintiff agreed to adjudicate this dispute before the Toronto Commercial List before the commencement of the proceeding. The plaintiff submits that, given this procedural agreement, the corporate defendant cannot resile from this agreement by bringing this motion. The plaintiff relies on paragraph 31 of the statement of claim in which the plaintiff pleads that defendants’ counsel agreed, on consent, that the Commercial List is the appropriate forum for this action.
9The parties agreed that, subject to the court’s discretion, this action would proceed on the Commercial List, and they agreed on a timetable for the exchange of pleadings. They did not agree that no motions would be brought.
10The corporate defendant is not precluded from bringing this motion.
Should the statement of claim be struck out on the ground that it discloses no reasonable cause of action against the corporate defendant?
11Rule 21.01(1)(b) of the Rules of Civil Procedure provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action.
12The test on such a motion to strike a pleading is not in dispute. The claim will only be dismissed where it is “plain and obvious” that it has no reasonable prospect of success. The facts as pleaded are assumed to be true. The claims must be supported by material facts that - assuming they could be proved - would establish the claims. The pleading must be read generously, with allowances for any drafting deficiencies. See Trillium Power Wind Corporation v. Ontario (Natural Resources), 2013 ONCA 683, at para. 31; Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, at para. 17.
13In Burns v. RBC Life Insurance Company, 2020 ONCA 347, the Court of Appeal referred to rule 25.06(1) which requires a statement of claim to contain a concise statement of material facts on which the party relies for its claim and noted, at para. 16, that “[e]ach defendant named in a statement of claim should be able to look at the pleading and find an answer to a simple question: What do you say I did that has caused you, the plaintiff, harm, and when did I do it?”
14A defendant is entitled to know the precise nature of what it is alleged to have done, and it is inappropriate to simply lump two or more defendants together without identifying the specific acts undertaken by each defendant which support the causes of action pleaded: Martin v. AstraZeneca Pharmaceuticals PLC, 2012 ONSC 2744, at paras. 116-120.
15In Catalyst Capital Group v. VimpelCom Ltd., 2018 ONSC 2471, at para. 116, Hainey J. cited the following passage from the decision of Mesbur J. in McCarthy Corp. PLC v. KPMG LLP, [2007] O.J. No. 32, at para. 26, concerning the requirements for pleading breach of contract:
A claim for breach of contract must contain sufficient particulars to identify the nature of the contract, the parties to the contract and the facts supporting privity of contract between the plaintiff and defendant, the relevant terms of the contract, which term or terms was breached, and the damages that flow from that breach. It must also plead clearly who breached the term, and how it was breached.
16The corporate defendant submits that the statement of claim does not allege as a fact that it was a party to the Agreement and that the lack of privity of contract means that there is no reasonable cause of action for breach of contract. The plaintiff responds that a corporation must act through individuals and, given that he has pleaded that the shares of the corporate defendant were owned by the three individual defendants and, in paragraph 11, he pleads that “the parties” agreed that the plaintiff would receive the Equity interest, he has sufficiently pleaded that the corporate defendant was a party to the Agreement. If this was the only pleading deficiency, I would grant an allowance for plaintiff’s the failure to plead facts that show that the individual defendants acted not only for themselves, but for the corporate defendant, when they made the Agreement. However, the statement of claim is more substantively deficient.
17The plaintiff does not plead that the corporate defendant had any obligation to do or to refrain from doing anything under the Agreement. The contractual obligation which the plaintiff pleads was owed to him under the Agreement is that he was promised that the individual defendants would transfer the Equity to him proportionate to their relative shareholdings. This is not an obligation that the plaintiff pleads was owed to him by the corporate defendant.
18The plaintiff submits that the statement of claim should be read generously to include an allegation that corporate defendant was obligated to facilitate the transfer of the Equity under the Agreement. The plaintiff submits that he has not yet had the benefit of documentary or oral discovery, and, at this stage, he should not be required to plead with more precision the legal obligations owed by the corporate defendant under the Agreement and how the corporate defendant failed to facilitate the transfer of Equity. He submits that he will be able to provide more particularity to support his claims against the corporate defendant after discovery.
19This argument misapprehends the nature of this motion. In Imperial Tobacco, McLachlin C.J.C. made it clear, at para.23, that a motion to strike out a pleading on the ground that it discloses no reasonable cause of action is not about evidence, but the pleadings. McLachlin C.J.C. explained what is required in a claimant’s pleading, at para. 22:
It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant may not be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted.
20The plaintiff’s failure to plead that the corporate defendant owed any obligations to him under the Agreement is a fatal defect in the pleaded claim for breach of contract against the corporate defendant. This defect cannot be cured by reading the statement of claim broadly or by making allowances for drafting deficiencies. It is plain and obvious that the statement of claim discloses no reasonable cause of action for breach of contract against the corporate defendant.
21The claim for conversion is pleaded against the defendants, including the corporate defendant, and the plaintiff seeks damages reflecting 25% of the value reasonably attributable to the sale of the Folks VFX Toronto studio to FuseFX. The corporate defendant was not the owner of any shares in itself as a corporation. The plaintiff does not plead any facts that show that that the corporate defendant did or failed to do anything that wrongfully interfered the plaintiff’s ownership of the Equity or that it acted in any way that is inconsistent with the plaintiff’s ownership of the Equity. The plaintiff has failed to plead facts that, assuming they are true, support a claim for conversion against the corporate defendant. It is plain and obvious that the statement of claim fails to disclose a reasonable cause of action against the corporate defendant for conversion.
22The plaintiff claims, in the alternative, damages for fraudulent misrepresentation as it relates to the promise that he would be granted the Equity which induced him to undertake the development of the Folks VFX Toronto studio. There is no statement of fact pleaded in the statement of claim that the corporate defendant made any misrepresentation to the plaintiff, fraudulent or otherwise. It is plain and obvious that the statement of claim discloses no reasonable cause of action against the corporate defendant for fraudulent misrepresentation.
23In the further alternative, the plaintiff claims damages under the doctrines of unjust enrichment and quantum meruit. A claim for unjust enrichment has three elements: (i) an enrichment of the defendant, (ii) a corresponding deprivation of the plaintiff, and (iii) the absence of any juristic reason for the enrichment: Garland v. Consumers’ Gas Co., 2004 SCC 25, at paras. 30. A contract is a juristic reason for enrichment: Garland, at para. 49. The plaintiff pleads that under the Agreement, he made arrangements for new premises for Folks VFX and added 34 employees at great professional risk and, through his efforts, Folks VFX attracted major productions to work with it. He pleads that the individual defendants then sold the Folks VFX business to Fuse FX without transferring the Equity to the plaintiff as required by the Agreement, and they thereby appropriated the fruits of the plaintiff’s labour and the value of his reputation. This is a pleading that the individual defendants benefited from their breach of the Agreement and that the plaintiff suffered damages that were caused by this breach. The plaintiff does not plead facts in the statement of claim that, assuming they are true, support a claim for unjust enrichment or quantum meruit against the corporate defendant. It is plain and obvious that the statement of claim discloses no reasonable cause of action for unjust enrichment or quantum meruit against the corporate defendant.
24The plaintiff claims, in the alternative, damages as a result of the failure to honour his beneficial ownership of the Equity pursuant to the Canada Business Corporations Act. At the hearing of this motion, the plaintiff acknowledged that this court lacks jurisdiction to grant relief for a claim for oppression under British Columbia’s Corporations Act. In this part of my analysis, I assume that the court has subject matter jurisdiction over the oppression claim under the CBCA.
25The plaintiff does not plead any facts that, assuming they are true, show that the corporate defendant acted in a way to engage the oppression remedy in s. 241 of the CBCA. As I have noted in my analysis of the other causes of action, the plaintiff does not plead that the corporate defendant engaged in any wrongful conduct. It is plain and obvious that the statement of claim discloses no reasonable cause of action against the corporate defendant for oppression under the CBCA.
26For these reasons, the statement of claim should be struck out as against the corporate defendant on the ground that it discloses no reasonable cause of action against it.
27The corporate defendant submits that leave to amend the statement of claim should not be granted because, it contends, the plaintiff cannot allege further material facts to support the allegations. The corporate defendant submits that there is nothing that the plaintiff could plead that could attribute potential liability to the corporate defendant for breach of contract or any alternative causes of action.
28Leave to amend should only be denied in the clearest of cases: Burns v. RBC Life Assurance Company, 2020 ONCA 347, and authorities cited. I am not satisfied that this is such a case, and that the plaintiff is unable to amend the statement of claim to plead a reasonable cause of action. There is no evidence of prejudice to the corporate defendant if leave to amend is granted. I grant leave to the plaintiff to amend the statement of claim, if so advised.
Should the claim for oppression under the CBCA be dismissed or stayed on the ground that this Court lacks subject matter jurisdiction?
29Rule 21.01(3)(a) provides that a defendant may move before a judge to have an action stayed or dismissed on the ground that the court has no jurisdiction over the subject matter of the action.
30The plaintiff claims damages as a result of the failure to honour his right to beneficial ownership of the Equity pursuant to the CBCA including s. 241 thereof. The corporate defendant submits that the CBCA does not apply to it because the corporation was discontinued under the CBCA and, accordingly, this Court lacks jurisdiction over the subject matter of this claim.
31Section 3(1) provides that the CBCA “applies to every corporation incorporated and every body corporate continued as a corporation under this Act that has not been discontinued under this Act”. The term “corporation” is defined in s. 2(1) of the CBCA to mean “a body corporate incorporated or continued under this Act and not discontinued under this Act”.
32Subsections 188 (7) and (9) of the CBCA provide:
(7) On receipt of a notice satisfactory to the Director that the corporation has been continued under the laws of another jurisdiction or under one of the Acts referred to in subsection (2.1), the Director shall file the notice and issue a certificate of discontinuance in accordance with section 262.
(9) This Act ceases to apply to the corporation on the date shown in the certificate of discontinuance.
33Section 241 of the CBCA provides that a complainant may apply to a court for an order under this section and if, on such an application, the court is satisfied that in respect of a corporation or any of its affiliates, there are or have been acts that are oppressive, the court may make an order to rectify the matters complained of.
34On this motion, the corporate defendant provided evidence, supported by a British Columbia company summary report, that it is an unlimited liability corporation that was continued into British Columbia on March 27, 2020. The corporate defendant also relies on the Federal Corporation Information record in respect of Folks VFX Inc. which shows that it is inactive and was discontinued on March 27, 2020. This record also shows that a Certificate of Discontinuance was issued on March 27, 2020 and the importing jurisdiction is British Columbia.
35The CBCA does not apply to the corporate defendant because it was discontinued on March 27, 2020 and a Notice of Discontinuance was issued on that day. The CBCA no longer applies to the corporate defendant. The Ontario Superior Court of Justice (defined as “court” in s. 2(1) of the CBCA) lacks jurisdiction to grant a statutory remedy in respect of the corporate defendant under the CBCA.
Disposition
36For these reasons:
a. The statement of claim as against the defendant Folks VFX ULC is struck out.
b. The plaintiff is granted leave to amend the statement of claim, if so advised, and the amendments shall be made within 45 days.
c. The claims made in the statement of claim against Folks VFX ULC for relief pursuant to the Canada Business Corporations Act, R.S.C. 1985, c. C-44 and pursuant to the Corporations Act, S.B.C. 2002, c. 57 are dismissed.
37If the parties are unable to resolve costs, the moving party may make written submissions within 14 days. The plaintiff may make written responding submissions within 14 days thereafter. The moving party may make brief reply submissions, if so advised, within 5 days thereafter.
Cavanagh J.
Date: November 10, 2020