COURT FILE NO.: 15-66979
DATE: 2020/12/11
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Doyle Salewski Inc., in its capacity as Trustee in Bankruptcy and Receiver and Manager of Golden Oaks Enterprises Inc. and Joseph Gilles Jean Claude Lacasse,
Plaintiffs/Responding Parties
– and –
LORNE SCOTT, PATRICK BRUNETTE, ERIC LANDRIAULT, MATTHEW DANIELS, VERICO THE MORTGAGE ADVISORS INC., VINCENT HO, JOHN MCKILLIP and SUSAN MCKILLIP
Defendants/Moving Parties
Gordon Douglas and Jordan Deering for Doyle Salewski Inc.
Stephen Cavanagh for Eric Landriault
Denis Cadieux for Patrick Brunette
Natalie Marie Leon for Matthew Daniels and Verico the Mortgage Advisors Inc.
Alyssa Tomkins and James Plotkin for Lorne Scott and John and Susan McKillip
HEARD: In writing
DECISION ON FURTHER MOTIONS TO STRIKE
S. Gomery J.:
[1] This is a motion pursuant to r. 21.01(b) of the Rules of Civil Procedure by seven of the eight defendants to this action. They contend that the plaintiff’s claim for damages in its Fresh Amended Amended Statement of Claim (the “Re-Amended Statement of Claim”) discloses no reasonable cause of action, and should therefore be struck without leave to amend.[^1] In addition, the defendant Eric Landriault argues that paragraph 55 of the Re-Amended Statement of Claim should be struck pursuant to r. 25.11(b) and (c).
[2] This is the second time that the defendants have sought to strike some or all of this claim. Last year, they presented r. 21 motions attacking the plaintiff’s Fresh as Amended Statement of Claim issued in 2019 (the “2019 Statement of Claim”). In my decision on the motions (the “First Decision”), I held that there were fundamental deficiencies with respect to the plaintiff’s claim for damages, but granted it leave to amend its pleading to address them.[^2]
[3] Despite the amendments made in the Re-Amended Statement of Claim, the defendants take the position that it still does not disclose a viable cause of action for damages against them.
[4] After reviewing the background giving rise to the motion, I will address three questions:
I. What is the appropriate approach on a motion to strike under r. 21?
II. Has the plaintiff addressed the deficiencies identified in the First Decision?
(1) Has it pleaded sufficient material facts regarding the damages claimed?
(2) Has it pleaded sufficient material facts to ground a claim against the McKillips?
III. Are there any other issues that should be addressed on the motions?
[5] For the reasons that follow, I am granting the McKillips’ motion. The claim against them is struck without further leave to amend. I am dismissing the motions by all other defendants, as the plaintiff has addressed the deficiencies identified in the First Decision with respect to the damages claim against them. The defendants’ other attacks on the damages claim, based on grounds not raised in their earlier motions, constitute an abuse of process, are unfounded or shall be considered at a future date.
A. Background to these motions
[6] This 2015 action is one of a series of lawsuits by Doyle Salewski Inc. (“Doyle Salewski”), in its capacity as trustee in bankruptcy, receiver and manager of Golden Oaks Enterprises Inc. (“Golden Oaks”), and its principal, Jean-Claude Lacasse, to recover the company’s assets for the benefit of its unsecured creditors.
[7] In my judgment on seventeen other such actions last year, I found that Golden Oaks was used by Lacasse as a vehicle for a Ponzi scheme.[^3] The company was operated by Lacasse between 2009 and 2013. Lacasse promoted Golden Oaks as a pathway to home ownership for tenants who would not qualify for a conventional mortgage loan. The rent-to-own model was not financially viable. To cover the company’s losses, Lacasse recruited investors who loaned money to Golden Oaks in return for short-term promissory notes requiring the company to pay excessive or even usurious rates of interest. Early investors were paid using funds advanced by later or returning investors. Golden Oaks also obtained mortgage loans and made assignments that exceeded the value of the properties to which they were attached. The company collapsed and went into receivership in 2013, when fresh investment failed to keep pace with the company’s ballooning debt.
[8] The defendants in this lawsuit were employees of Golden Oaks, professionals who provided services to the company, and individuals who solicited investment in the rent-to-own program. They were paid for their services and efforts through commissions, salary or fees.
[9] The overarching theory of the plaintiff’s case against the defendants s captured at para. 24 of the Re- Amended Statement of Claim:
- DSI states that the Defendants knew, or ought to have known, that Lacasse was using Golden Oaks as a corporate front to perpetrate a Ponzi Scheme, to the detriment of Golden Oaks, the investors in Golden Oaks, and the creditors of Golden Oaks. DSI further states that the Defendants knew, or ought to have known, that their acts or omissions, as set out herein, materially assisted Lacasse in perpetrating the Ponzi Scheme and/or failed to prevent Lacasse from continuing to perpetrate the Ponzi Scheme. DSI further states that without the assistance of the Defendants, the Ponzi Scheme could have collapsed before many of the investors loaned money to fuel the Ponzi Scheme.
[10] In its 2019 Statement of Claim, Doyle Salewski advanced three causes of action against the defendants: a claim for contribution and indemnity; a claim for damages based on negligence, breach of contract, and/or breach of fiduciary duty; and a claim for accounting and disgorgement. The first two causes of action were asserted against all defendants. The disgorgement and accounting claim was made against all defendants except John and Susan McKillip.
[11] In September 2019, the defendants presented r. 21 motions seeking to strike the 2019 Statement of Claim. In the First Decision, I held that:
(i) The claim for contribution and indemnity against all defendants was struck as disclosing no reasonable cause of action. Since the theory underlying the contribution and indemnity claim was untenable, Doyle Salewski was denied leave to amend its pleading to attempt to salvage this part of the claim.
(ii) The claim for damages against all defendants and the claim against John and Susan McKillip in particular were struck as disclosing no reasonable cause of action. Doyle Salewski was however granted leave to amend the 2019 Statement of Claim to address identified deficiencies in respect of this part of the claim.
(iii) The disgorgement claims against all defendants except the McKillips could proceed on the basis of the allegations in the 2019 Statement of Claim, subject to the defendants’ right to move for their dismissal on the basis of limitations at a later date.
[12] In April 2020, Doyle Salewski served and filed the Re-Amended Statement of Claim. The claim for contribution and indemnity was deleted. Doyle Salewski also deleted allegations described the defendants’ general knowledge and participation in the Ponzi scheme (paras. 26 to 32 of the 2019 Statement of Claim) and replaced them with more detailed allegations in a new Part J (paras. 88 to 105 of the Re-Amended Statement of Claim). These new allegations supplemented existing allegations with respect to each defendant at Parts D through I of the pleading, which were largely unchanged.
[13] In the Re-Amended Statement of Claim, Doyle Salewski also increased the quantum of its claim for damages from $10 million to over $14 million and added a new claim for punitive and exemplary damages. Finally, it appended, as Schedule A to the pleading, a chart particularizing the admitted proofs of claims by unsecured creditors who lent money to or invested in Golden Oaks.
[14] In response to the Re-Amended Statement of Claim, the defendants served these further motions to strike. The defendants take the position that Doyle Salewski has not addressed the deficiencies with the claim for damages identified in the First Decision. They also contend that the claim suffers from other fundamental deficiencies not raised in their earlier motions, and that new claims for damages are time-barred. Landriault furthermore argues that paragraph 55 of the Re-Amended Statement of Claim should be struck on the basis that it is scandalous, vexatious or frivolous, or an abuse of the process of the court.
B. Questions to address on the motions
I. What is the appropriate approach on a motion to strike under r. 21.01?
[15] The principles generally governing a motion under r. 21.01(b) are well known and set out at paras. 4 to 6 of the First Decision:
(a) The judge must assume that all facts pleaded in the statement of claim are true, unless they are patently ridiculous or incapable of proof,[^4] or the allegations amount to bald conclusory statements of fact or legal conclusions unsupported by material facts.[^5]
(b) The motion judge must determine if the claim has any prospect of success, assuming that all facts alleged are true.[^6] A claim is untenable if the allegations could not give rise to the judgment sought by the plaintiff in the action.
(c) A motion to strike a pleading can succeed only in the clearest of cases. The statement of claim must be read generously, and the motion will be granted only if it is plain and obvious that the plaintiff cannot succeed.[^7] A claim should not be struck just because it is novel, or because the underlying law is unsettled, or because the plaintiff’s odds of success seem slim.[^8] If it is plausible that the plaintiff could succeed, the court should allow the lawsuit to go ahead.
[16] Having reviewed the caselaw on the issue, I conclude that additional considerations arise where a motion to strike is one of a series of attacks on a pleading. I will review these considerations when I address the defendants’ arguments about deficiencies that were not identified in the First Decision.
II. Has the plaintiff addressed the deficiencies identified in the First Decision?
[17] In the First Decision, I identified two fatal deficiencies in the damages claim in the 2019 Statement of Claim:
(1) There were no allegations of a loss suffered by Golden Oaks as a result of the defendants’ acts and omissions.
(2) There were no material facts that could found a claim against the McKillips.
(1) Has Doyle Salewski pleaded sufficient material facts regarding the damages claimed?
[18] Having reviewed the Re-Amended Statement of Claim in its entirety, I find that the shortcomings in the damages claims against the defendants (other than the McKillips) have been addressed.
[19] In the First Decision, I concluded that Doyle Salewski had not alleged losses suffered by the company as a result of the defendants’ acts and omissions or described the causal link between those losses and the defendants’ impugned conduct. The only losses described in the 2019 Statement of Claim were claims totalling $10 million filed by unsecured creditors against Golden Oaks after it went into receivership. The pleading did not explain how the defendants’ conduct resulted in damages incurred by Golden Oaks itself. The 2019 Statement of Claim furthermore did not indicate how the claims by these creditors, who were not even identified, were linked to the defendants’ acts and omissions.
[20] Doyle Salewski has attempted to address these deficiencies with additional allegations, notably at Part J of the Re-Amended Statement of Claim. In this new section, it alleges that the company suffered damages totalling $14,962,852 as a result of the defendants’ impugned conduct. It states that Golden Oaks’ losses took the form of:
• $3,076,886 in interest payments on promissory notes at excessive rates of interest that Golden Oaks could not afford to pay, and that were traded in violation of the Securities Act, RSO 1990, c S-5);
• $7,328,714 in losses on properties purchased by the company, consisting of its costs with respect to the properties (mortgage interest ($577,479); rental expenses ($755,651); down payments ($3,381,347); unnecessary repairs, maintenance and renovations ($2,065,165) and administrative costs ($2,389,948)) minus rental income and net sale proceeds ($1,067,272);
• $1,690,286 in improper payments made to Lacasse;
• $1,827,213 in costs of the bankruptcy proceedings; and
• $356,457 paid to Scott, Ho and the McKillips as commission in respect of investments arranged by them;
• $225,719 paid to Landriault for legal fees and disbursements;
• $200,310 paid to Scott for real estate commissions;
• $104,807 paid to Daniels and/or Verico as mortgage brokerage commissions;
• $123,037 in wages paid to Brunette; and
• $29,423 in wages paid to Ho.
[21] The defendants concede that, in Part J, Doyle Salewski has identified the losses allegedly incurred by Golden Oaks. They nonetheless contend that the allegations with respect to the company’s losses remain fatally deficient in two respects.
[22] First, the defendants argue that some of the damages claimed are not recoverable, because Doyle Salewski is still claiming for losses incurred by the company’s unsecured creditors as opposed to Golden Oaks itself.
[23] It is true that the Re-Amended Statement of Claim still contains many references to losses suffered by Golden Oaks’ unsecured creditors, even though the plaintiff’s claim for contribution and indemnity has been struck from the pleading. To cite one of many examples, at para. 47(a) of the amended pleading, Doyle Salewski alleges that “Brunette knew or ought to have known that his acts or omissions as described herein would cause or contribute to all of the losses being claimed by the unsecured creditors in their proofs of claim as aforesaid and as being claimed by DSI herein”. Read in isolation, this passage implies that the damages claimed by Doyle Salewski are actually its creditors’ losses.
[24] Compounding this problem, in the Re-Amended Statement of Claim, Doyle Salewski has provided significantly more information about the losses of its unsecured creditors than it did in the 2019 version. It has done so by appending Schedule A, which lists admitted proofs of claims by investors and tenants. Some paragraphs of the current pleading refer both to the damages set out in Part J and the claims listed in Schedule A. The amended version of para. 33, for example, reads as follows:
In addition, aAs a result of his acts or omissions as aforesaid, Scott materially contributed to the damages suffered by Golden Oaks and all of its unsecured creditors, and now the Estate of Golden Oaks, as set out in and arising out of the over $10 million of proofs of claims against the Estate of Golden Oaks by all of the unsecured creditors who were victims of the Ponzi Scheme, as detailed in Schedule “A” to this Amended Amended Statement of Claim. Scott isthereforeliable for the damages being claimed by DSI herein, as particularized in Part J below.
[25] This same formulation is reproduced at paras. 33, 48, 64, 75, 80 and 87 of the Re-Amended Statement of Claim.
[26] I agree with the defendants that Schedule A and the references to claims by unsecured creditors muddy the waters considerably. Reviewing the Re-Amended Statement of Claim as a whole, however, including para. 1 and Part J, it is apparent that Doyle Salewski has calculated its damages based solely on the company’s own alleged losses. As already noted, at para. 1(a) of the pleading, it claims for “Damages for breach of contract, breach of fiduciary duty and negligence… which is in excess of $14 million”. At para. 88, the first paragraph in Part J, Doyle Salewski states that Golden Oaks’ losses total $14,962,852, and the rest of the section shows how that sum was derived. There is no additional claim for damages, in para. 1 or elsewhere, for $10 million based on claims filed with the trustee by unsecured creditors.
[27] Doyle Salewski has confirmed this understanding of its damages in its written submissions on the motion. It says that Schedule A is informational and could be removed from the pleading without any impact on the damages claimed.
[28] In light of Part J and the plaintiff’s unequivocal position on this motion, I find that the damages claimed are based solely on the company’s alleged losses, and that the amended pleading does not attempt to resurrect a claim based on losses incurred by Golden Oaks’ unsecured creditors, notwithstanding vestigial references to their claims and the addition of Schedule A.
[29] Second, the defendants contend that the plaintiff has not alleged how the defendants’ conduct caused the damages claimed.
[30] The causal link between the impugned conduct of each of the defendants and Golden Oaks’ alleged damages is set out, for the most part, in Part J. Doyle Salewski does not allege that every defendant is liable for all damages claimed. It alleges instead that the conduct of some or all defendants gave rise to specific categories of loss incurred by the company:
• At para. 89, the plaintiff alleges that the defendants Scott, Brunette, Landriault, Ho and the McKillips are liable for the excessive amounts of interest that the company paid on promissory notes, because each of them knew that Golden Oaks could not afford to pay the interest that would become due, and yet they either actively took steps to arrange for the sale of the notes or took no steps to prevent or avoid them.
• At paras 90 to 92, the plaintiff alleges that Scott, Brunette, Landriault, Daniels and Verico are liable for the company’s losses on purchases of real property, because they arranged for their purchase, renovation, and mortgage loans despite knowing that expenses associated with the properties exceeded rent or any other revenues they generated.
• At para. 93, the plaintiff alleges that each defendant is liable for payments made to Lacasse, because they knew or ought to have known that Golden Oaks did not have sufficient revenue from rental properties to afford the payments and yet did nothing to prevent the payments from being made.
• At paras. 94 and 95, the plaintiff alleges that each defendant is liable for the administrative and legal costs of the bankruptcy because, as a result of their acts and omissions, Golden Oaks was ultimately assigned into bankruptcy.
• At para. 98, the plaintiff alleges that all defendants are liable jointly and severally for all commissions paid by Golden Oaks.
• At paras. 97, 99, 100, 101, 102 and 103, the plaintiff alleges that specific defendants are liable to repay amounts they personally received from Golden Oaks in the form of commissions for investments they arranged (Scott, Ho and the McKillips); legal fees and disbursements (Landriault); real estate commissions (Scott); mortgage brokerage commissions (Daniels and Verico); and wages (Brunette and Ho).
[31] Reviewing the Re-Amended Statement of Claim as a whole, I do not find that it lacks sufficient material allegations with respect to the causal link between the defendants’ acts and omissions and the losses claimed.
(a) Allegations with respect to Landriault
[32] At para. 11 of the Re-Amended Statement of Claim, Landriault is described as Golden Oaks’ solicitor, as well as an investor and promoter of the company.
[33] Allegations about Landriault’s conduct are found in Parts F and J. These allegations must be read together to get a full picture of what he is alleged to have done and how his acts and omissions caused Golden Oaks to lose money. The plaintiff alleges that Landriault breached his duty of care, contractual and fiduciary duty to Golden Oaks by, among other things:
• providing advice to Lacasse about how to attract investors to the Ponzi scheme, and failing to warn Golden Oaks about Lacasse’s improper use of the company or take steps to prevent the company from entering into improvident arrangements with investors, including promissory notes at excessive rates of interest that the company could not repay (paras. 57, 59 and 89);
• acting for the company on the acquisition, sale and mortgaging of various properties that it could not afford to purchase or maintain (paras. 53, 57, 59 and 90);
• participating in giving fraudulent preferences to certain investors to secure loans that were otherwise unsecured (paras. 54, 57 and 59);
• in his capacity as an investor in Golden Oaks, receiving cash commissions and interest at a criminal rate while acting as the company’s lawyer, thereby putting himself in a conflict of interest (paras and 56, 57 and 59); and
• allowing the company to make payments to Lacasse, knowing that they were improper, and the company did not have sufficient revenue to afford them (para. 93).
[34] At para. 94, the plaintiff alleges that, as a result of Landriault’s acts and omissions, Golden Oaks incurred obligations it was unable to pay, eventually forcing the company into bankruptcy. At para. 88, Doyle Salewski alleges that Golden Oaks relied on Landriault and the other defendants in respect of their services to the company, and that the damages it incurred were foreseeable.
[35] Given these allegations, it is inaccurate for Landriault to assert, in his current motion to strike, that the only specific allegation against him is found at para. 55. There are numerous other allegations of negligent acts and omissions, breaches of contract and fiduciary duty by Landriault, and assertions as to how such acts, omissions and breaches caused Golden Oaks’ deepening insolvency from 2012 forward.
[36] Landriault also complains that no particulars have been pleaded about the services for which he was paid legal fees and disbursements, nor how those services caused damage to Golden Oaks. He therefore takes the position that the claim for damages equivalent to such legal fees and disbursements should be struck.
[37] In Part F, Doyle Salewski describes services performed by Landriault on the company’s behalf, in his capacity as a lawyer. At the end of that section, in para. 65, it alleges that Landriault received significant legal fees for his services. Even if not explicitly stated, a sensible reading of these allegations is that the legal fees and disbursements mentioned at paras. 65 were paid for the services described earlier in the same section, and that these same fees are those quantified at para. 99.
[38] With respect to the causal link between the damages and Landriault’s impugned conduct, Golden Oaks has alleged that transactions in respect of which Landriault provided services caused the company’s deepening insolvency and eventual bankruptcy.
[39] I conclude that the pleading as a whole, read generously, contains sufficient material facts with respect to how Landriault allegedly breached his legal obligations towards Golden Oaks, and how these breaches allegedly caused the company’s financial situation to worsen.
(b) Allegations with respect to Brunette
[40] At paras. 10, 35 and 36 of the Re-Amended Statement of Claim, Brunette is described as a senior employee and part-owner of Golden Oaks. Part E alleges that he assisted Lacasse in various ways in perpetrating a Ponzi scheme, earning significant income while doing so.
[41] In his second motion to strike, Brunette contends that there are particular deficiencies in the allegations against him.
[42] First, he contends that no link is drawn between the allegation in para. 90 that he failed to implement and maintain an accurate system for accounting and financial reporting for Golden Oaks, and the allegation in that same paragraph that his acts and omissions caused the company’s real estate losses.
[43] In my opinion, this argument mischaracterizes the purpose of the allegation about Brunette’s involvement in maintaining Golden Oaks’ financial records. At the beginning of para. 90, Golden Oaks alleges that its real estate losses arose because it borrowed money to purchase and renovate properties, even though it lacked the means to do so and the rents it received did not generate enough revenue to cover its expenses. Doyle Salewski alleges that, despite the company’s negative cash flow and ongoing losses, Brunette continued to arrange for purchases, renovations and mortgages on its behalf. The allegation about his involvement in keeping the company’s accounts goes to his state of knowledge, and is not asserted, on my reading of the pleading, as conduct which caused the company to lose money on its real estate purchases.
[44] Second, Brunette takes issue with Golden Oaks’ claim for recovery of down payments it made on properties it acquired. Brunette argues that these were self-evidently legitimate expenses for a property developer and contends that “no element in the pleading allows one to determine [such] expenses was even inappropriate in the first place”.
[45] Reading the Re-Amended Statement of Claim as a whole, or even just para. 90, I do not agree that the plaintiff fails to assert why the purchases were ill-advised in the circumstances. A pleadings motion is not the appropriate juncture to assess whether any particular claim for damages by Doyle Salewski is likely to succeed. The analysis at this point is confined to whether a cause of action as a whole is so clearly deficient or untenable that there is no point in allowing the plaintiff to continue advancing it.
(c) Allegations with respect to Daniels/Verico (“Daniels”)
[46] Doyle Salewski’s specific allegations with respect to Daniels are found in Parts G and J of the Re-Amended Statement of Claim.
[47] The plaintiff alleges that, from February 2012 to May 2013, Daniels provided brokerage services to Golden Oaks on 78 transactions, for which he was paid significant commissions. Daniels became aware, in 2012, that Golden Oaks was raising money by soliciting loans that were secured only by promissory notes, that the rent-to-own business operated at a loss, and that the company did not qualify for the mortgage loans it sought and secured. Despite this, Daniels promoted the company to new investors and provided false information to lenders about Lacasse’s income and Golden Oaks’ revenues and assets. The information was contained in letters to prospective lenders prepared by Daniels between February 2012 and February 2013, as well as in mortgage applications and summaries and occupancy agreements.
[48] Doyle Salewski alleges that Daniels breached his duty of care, fiduciary duty and contractual obligations to Golden Oaks. It also alleges that Daniels breached his duties as a mortgage broker under provincial legislation.
[49] In his motion, Daniels contends that there is no causal connection between his alleged breaches and two of the categories of damages claimed.
[50] The first such category of damages are Golden Oaks’ losses on its real estate purchases. The Re-Amended Statement of Claim alleges that that Daniels breached its legal and contractual duties by giving false information to Golden Oaks’ mortgage lenders. Daniels argues that any losses flowing from these misrepresentations would been borne by the lenders, not the company.
[51] I do not agree. If the plaintiff’s overall theory of the case is accepted, Doyle Salewski could potentially recover losses flowing from Daniels’ misrepresentations. This is because the losses claimed are not for the misrepresentations per se, but for Daniels’ participation in a scheme to obtain funding for the ongoing Ponzi scheme, an aspect of which was the securing of mortgage loans based on false information.
[52] The second category of damages that Daniels argues is not causally connected to his alleged breaches is the payment by Golden Oaks of interest on promissory notes. The plaintiff alleges at para. 89 that Daniels promoted the notes but does not allege that he was involved in arranging for them. Daniels is not included in the list of defendants the plaintiff identifies as liable for this category of losses in the last two sentences of the same paragraph:
As a result of the actions of these Defendants in arranging these excessive rates of interests [sic], or failing to take steps to prevent or avoid these arrangements, Golden Oakes [sic] paid $3,076,886 to its investors in interest. These defendants, Scott, Brunette, Landriault, Ho and the McKillips, are liable to Golden Oaks, jointly and severally, in respect of this interest, and such further and other interest that may be proved at trial of this action.
[53] Based on para. 89, and the absence of any allegation that Daniels was involved in arranging for promissory notes, I agree that Doyle Salewski does not assert that Daniels is liable for the interest paid on such notes.
[54] This conclusion does not mean that the plaintiff’s entire claim for damages against Daniels should be struck. My role on a r. 21 motion is not to edit the statement of claim. There are sufficient material allegations that, if proved, could lead to a court to find Daniels liable for some of the damages claimed. I therefore conclude that the plaintiff has remedied the deficiencies with respect to the claim against Daniels identified in the First Decision.
(d) Allegations with respect to Scott
[55] Scott’s motion focusses on the sufficiency of allegations in the Re-Amended Statement of Claim with respect to a duty of care owed by him to Golden Oaks and allegations regarding the claim for breach of contract. I will deal with these arguments below, in section (iii).
Conclusions on the sufficiency of allegations with respect to damages claimed
[56] The defendants contend generally that the entire damages claim against them boils down to the allegation that they were aware of Golden Oaks’ dire financial situation and yet did nothing to prevent it from making investments and incurring legal obligations that put it further into debt. They argue that this kind of pleading “falls far short of what the Court of Appeal has said is required: “What do you say I did that has caused you, the plaintiff, harm, and when did I do it?”.[^9]
[57] There are several problems with this argument. First, I do not agree that the plaintiff has pledged mere awareness. It alleges that the defendants actively promoted Golden Oaks and took part in arranging transactions to the company’s detriment. Second, even if the only allegation was an omission to act, this would not mean that Doyle Salewski’s claim for damages was untenable. A failure to act, on its own, may trigger liability in negligence. Third, based on my review of the Re-Amended Statement of Claim, Doyle Salewski’s assertions about what each of them did or did not do are readily discernable. I agree that the allegations do not always include full particulars about when and how each defendant allegedly committed various acts and omissions. This is not, however, a reason to strike the claim, as the defendants can seek further details under r. 25 or through discovery.
[58] The Re-Amended Statement of Claim is not a model of clarity. I have already mentioned Schedule A and the repeated references to losses incurred by unsecured creditors. These allegations are misleading and largely, if not wholly, irrelevant. Doyle Salewski also makes some allegations about specific defendants that do not seem to have any purpose beyond colour. For example, at para. 89 it alleges that Ho’s cash transactions with investors resulted in inaccurate and incomplete financial records. It does not however allege that the inaccurate and incomplete records caused the company any of the losses claimed.
[59] Doyle Salewski itself acknowledges that para. 97 ought to be removed from the Re-Amended Statement of Claim. In para. 96, it alleges that Scott, Ho and the McKillips each received commission in respect of commissions arranged by them. In para. 97, it states that: “The Defendants are each liable to Golden Oaks in respect of the commissions paid to them”. As Doyle Salewski admits in its submissions, however, its claims for these amounts have already been adjudicated.[^10] This makes it difficult to understand how it could assert, in para. 98, that all of the defendants are jointly and severally liable for all commissions paid by Golden Oaks.
[60] And yet, the test on a r. 21 motion is not whether the plaintiff will have difficulty proving some parts of its claim or whether its pleading is well-drafted. The salient questions are, on the one hand, whether various causes of action advanced are tenable and, on the other, whether a defendant is able to understand what is being claimed against them. The statement of claim must be read generously. Drafting weaknesses should not doom a claim so long as the material elements of a viable cause of action are discernable.
[61] I conclude that the plaintiff has addressed the fatal deficiencies with respect to the damages claim identified at paras. 55 to 64 of the First Decision. The drafting issues do not prevent the defendants from understanding the plaintiff’s allegations and defending to them.
(2) Are material facts alleged that could found a cause of action against the McKillips?
[62] The McKillips contend that the Re-Amended Statement of Claim still does not contain material allegations that could give rise to any reasonable cause of action against them. I agree.
[63] The 2019 Statement of Claim alleged that the McKillips solicited investment in the Ponzi scheme and that they received significant commissions for their efforts. Negligence is the only cause of action pleaded against them. In the First Decision, I held that, even if these allegations were assumed to be true, the alleged activities on their own could not give rise to a relationship of sufficient proximity between the McKillips and Golden Oaks to found a duty of care:
The McKillips’ promotion of investment in the company and receipt of commissions is not enough, by itself, to create a relationship of sufficient proximity between these defendants and Golden Oaks. The allegations could not found a conclusion that the McKillips implicitly undertook to take reasonable care in their acts or omissions with respect to the company, or a conclusion that the company reasonably relied on such an undertaking.
[64] The plaintiff argues that it has now pleaded sufficient material facts to ground a finding that the McKillips’ owed Golden Oaks a duty of care as agents or consultants. It points to para. 82 of the Re-Amended Statement of Claim, that asserts that the McKillips were part of Golden Oaks’ “sales team”.
[65] The “sales team” allegation is not new. It was set out in para. 93 in the 2019 Statement of Claim, which has now become para. 82 in the amended pleading. This paragraph contains the only allegations of fact with respect to the McKillips’ relationship to Golden Oaks. As amended, it reads as follows:
- J. McKillip and S. McKillip (“McKillips”) were a significant part of the “sales team” created by Scott as aforesaid. The McKillips, together with their business partners, Andrew Lloyd and Monika Lloyd, jointly solicited on behalf of Golden Oaks, as consultants or agents, approximately $1.2 million in new investor deposits from investors who became victims of the Ponzi Scheme, as well as over $1 million in investment rollovers. The McKillips received significant commissions in these investments from Golden Oaks to their personal benefit.
[66] The plaintiff has added other allegations, but they do not go to the relationship between the McKillips and Golden Oaks. In paras. 83 and 84, it simply asserts that McKillips knew about excessive interests on investor loans and Golden Oaks’ inability to pay them, and that the company relied on the McKillips “to provide their services with reasonable care and in a manner that did not cause harm to Golden Oaks”. Para. 89 repeats the allegation that the McKillips failed to prevent the company’s sale of promissory notes, and adds that their sales activities breached the Securities Act, as they were not licensed to trade in securities. Finally, para. 96(c) says that the McKillips received commissions totaling $33,625.
[67] Absent from the Re-Amended Statement of Claim is any allegation of fact that, if true, would establish that the McKillips had any insight into the workings of Golden Oaks or its financial situation, or that would indicate any basis for the assertion of the company’s reasonable reliance. There are no material facts pleaded that identify the source of the McKillips alleged knowledge that Golden Oaks could not pay the interest owed on promissory notes. There is no allegation, for example, that the McKillips were present at regular management meetings with the company’s staff, as is alleged with respect to Ho and Scott, or that they had any involvement in maintaining records for the company, as is alleged with respect to Brunette.
[68] In the First Decision, I held that the allegations against the other defendants could give rise to a finding that they had a duty of care to the company. The McKillips are, however, differently situated than the other defendants. They were not employees of Golden Oaks, like Brunette and Ho. They did not provide professional services to the company, like Scott, Landriault or Daniels/Verico. The McKillips are identified simply as investors in Golden Oaks who promoted the company to other investors and received commissions from the company for these efforts.
[69] As noted at paras. 40 to 42 of the First Decision, in a negligence claim for pure economic loss, the court must consider whether a duty of care could exist, based on the test set out by the Supreme Court of Canada in Deloitte & Touche v. Livent Inc. (Receiver of).[^11] This analysis is required not only in claims for negligent misrepresentation but also in claims for negligent provision of services. In the first stage of the test, the court must first consider whether the plaintiff has alleged material facts that, if true, would establish the necessary proximity between the parties. The proximity analysis takes into account factors such as the parties’ expectations, representations, reliance, property and other interests involved. As summarized at para. 42 of the First Decision: “The focus is on what, if anything, the defendant undertook, through its acts or representations, and the extent to which the plaintiff reasonably relied on the undertaking”.[^12]
[70] The Re-Amended Statement of Claim is silent as to anything the McKillips might have done or said that would have caused the plaintiff to expect that they would take reasonable care when promoting investment in the company. It does not assert any fact that might lead Golden Oaks to rely on them, beyond their alleged status as agents or consultants.
[71] The plaintiff’s simple assertion that the McKillips were acting as consultants or agents is not enough to establish proximity. The facts alleged with respect to the McKillips, even if proved, would not permit a court to conclude that they undertook, through their acts or representations, to prevent Golden Oaks from agreeing to pay improvident and possibly criminal rates of interest on investments, or to take steps to ensure that the company did not enter into contracts requiring it to pay interest that it could not afford.
[72] The allegation of an agency relationship is particularly unhelpful given the absence of any cause of action aside from negligence asserted against the McKillips. An agent typically owes fiduciary duties to their principal, yet no fiduciary duty on the part of the McKillips is pleaded. There is also no allegation of any contract between the McKillips, Golden Oaks or Lacasse. The absence of such allegations makes it even less clear what, if anything, the characterization of the McKillips as agents adds to the claim.
[73] I conclude that, despite the amendments, no tenable cause of action against the McKillips has been pleaded and that the claim against them must therefore be struck. Since Doyle Salewski has already had a chance to remedy the insufficiencies identified in the First Decision but has not done so, there is no reason why they should be given leave to amend this aspect of the pleading again.
III. Are there any other issues that should be addressed on this motion to strike?
[74] The defendants contend that there are other problems with the Re-Amended Statement of Claim:
(i) The plaintiff does not allege material facts, including an undertaking made by each defendant, that could ground a finding that each defendant owed a duty of care, or that Daniels breached a contract with Golden Oaks;
(ii) Paragraph 55 should be struck; and
(iii) New claims for damages are time-barred.
(i) Absence of allegations establishing the defendants’ a duty of care
(a) Legal principles relevant to serial motions to strike
[75] There is a long-standing principle that serial challenges to a pleading should be discouraged. Determinations made by the court at an interlocutory stage may give rise to issue estoppel in the same proceeding or subsequent proceedings. Even if the strict requirements of issue estoppel are not met, multiple attacks on a pleading may constitute an abuse of process and be dismissed on that basis.
[76] In 1946, for example, the defendant in Stonkus v. Stonkus moved to strike out parts of the plaintiff's statement of claim. The court dismissed the motion on the basis that the defendant had made an earlier motion to strike other parts of the same pleading. Master Conant held that when a party moves to strike, he must use the opportunity to challenge every allegation that he intends to challenge, as it would be “a manifest absurdity to allow a party to an action to attack his opponent’s pleadings piecemeal”.[^13]
[77] In Great Lakes Lumber & Shipping Ltd. v. Great Lakes Paper Co. Ltd., a master similarly concluded that allowing serial motions to strike would be improper, even if the motions challenged different parts of a statement of claim.[^14]
[78] These decisions led Master Ferron in Slan v. Beyak to formulate this rule: [^15]
[I]n cases where there are no special circumstances, the general rule is that there should be one opportunity only afforded to a party to attack his opponent's pleading. Such attack should include a prayer for all remedies in the alternative so that the matter may be dealt with without a multiplicity of proceedings and thereby confirm the general rules of the Court.
[79] The rule in Slan v. Beyak remains in force and, absent exceptional circumstances, forecloses multiple attacks on the same pleading.[^16] As Justice Brown stated succinctly in Tribar Industries, “no second kick at the cat is permitted”.[^17]
[80] A second motion to strike may also be contested on the basis that it constitutes an impermissible challenge to a determination already made by the court. A decision in an interlocutory motion can give rise to issue estoppel.[^18] In that case, the defendant may not seek to relitigate the court’s determination through a further motion.
[81] This is not to say that all serial motions to strike are improper. It is perfectly appropriate for defendants to take the position that, despite amendments to a pleading, a plaintiff has not remedied deficiencies identified by the court as a result of an earlier motion to strike. The defendants may also challenge new claims and causes of action asserted for the first time in an amended pleading.
[82] What the rule against multiple attacks on a pleading means, however, is that the scope of defendants’ second motions should ordinarily be limited to further arguments with respect to the identified deficiencies, and arguments about any new claims and new causes of action in an amended pleading. Defendants should not, as a general rule, be permitted to take issue with purported deficiencies that they could have attacked in the first motion. Allowing them to advance such arguments may give rise to an abuse of process.
[83] Defendants are likewise precluded from mounting a collateral attack on final determinations made on interlocutory issues in the same proceeding. Due to the operation of issue estoppel, defendants should not ask a court to make a determination that contradicts a conclusion reached on the same issue earlier in the proceeding.
(b) Application of these legal principles to these motions
[84] Scott, Brunette, Landriault and Daniels each make extensive submissions as to why the allegations in the Re-Amended Statement of Claim do not survive a Livent duty of care analysis. They contend that Doyle Salewski has failed to allege material facts that would, if true, give rise to a duty of care on their part, based on the robust proximity analysis that must be conducted in negligence claims for pure economic loss.
[85] I conclude that these defendants should not be permitted to attack the Re-Amended Statement of Claim on this basis, because they did not advance any of these arguments on the earlier motions to strike, and accepting them would require me to contradict findings I made in the First Decision.
[86] At para. 69 of the First Decision, I noted that the defendants had not identified any shortcomings in the allegations in the 2019 Statement of Claim with respect to their duty of care. I concluded that a court could find that the defendants (except for the McKillips) owed Golden Oaks a duty of care and, in some cases a duty based on a fiduciary relationship or contract:
Aside from the absence of allegations of the losses suffered by Golden Oaks, and the absence of any material facts that could ground a cause of action against the McKillips, the defendants have not identified other deficiencies with the claims for damages. Given the relationships alleged between the defendants (aside from the McKillips) and the company, a court could find that they each owed it a duty of care and, in the case of Landriault and Daniels, a fiduciary duty. Doyle Salewski also alleges breaches of contract by Scott, Landriault and Daniels. Although there are few particulars about these contracts, these defendants have not argued that the pleading is insufficient to ground a cause of action on behalf of Golden Oaks. [Emphasis added.]
[87] The defendants now seek to raise the very arguments that they did not make on their earlier motions. If I granted their motions based on these grounds, I would have to find that some or all of the defendants did not owe Golden Oaks a duty of care, contrary to the conclusion I reached in the First Decision.
[88] There is some doubt as to whether the requirements for issue estoppel are met in this situation. Since I granted the defendants’ earlier motions to strike on other grounds, the defendants had no reason or means to challenge my finding on their duty of care. But even if issue estoppel does not apply, permitting the defendants to advance new arguments that they could have made in the earlier motions would, in my view, give rise to an abuse of process.
[89] The hearing of the 2019 motions to strike took a day. Landriault, Brunette, Daniels and Scott are each represented by separate counsel. These lawyers each made both oral and written submissions. The defendants are represented by able and experienced counsel, who presented complex and comprehensive arguments with respect to all three of the causes of actions advanced in the 2019 Statement of Claim.
[90] In these motions, arguments about the defendants’ duty of care to Golden Oaks’ unsecured creditors, or lack thereof, were central to the defendants’ attack on the plaintiff’s claim for contribution and indemnity. The defendants contended, successfully, that Doyle Salewski’s allegations could not give rise to a finding of a relationship of proximity between them and Golden Oaks’ creditors. This argument is reflected in the Livent analysis at paras. 38 to 53 of the First Decision.
[91] Despite their focus on the proximity analysis in their submissions on the contribution and indemnity claim, however, the defendants did not argue that they had no duty of care to the company, either in the context of these submissions or in their submissions on the shortcomings of the damages claim. As noted in the passage in the First Decision reproduced above, they effectively conceded this point.
[92] Allowing the defendants to revisit the issue would condone a piecemeal, duplicative and wasteful approach to procedural motions. There was nothing stopping them, in 2019, from raising the very arguments they are advancing now. The court was already engaged in a proximity analysis in respect of the claim for contribution and indemnity. The usual rule that forecloses multiple attacks on the same pleading applies in these circumstances.
[93] The defendants’ attempt to make such arguments now gives rise not only to concern about an abuse of the court’s processes but fairness to the plaintiff. Doyle Salewski amended its statement of claim based on the deficiencies identified in the First Decision. Had the defendants made arguments on the first motions with respect to the absence of a duty of care owed to Golden Oaks, and had these arguments been accepted, the plaintiff could also have addressed these insufficiencies in its Re-Amended Statement of Claim.
[94] The defendants argue that Doyle Salewski fundamentally changed the theory of its case in the Re-Amended Statement of Claim. In the 2019 Statement of Claim, it sought damages based on losses incurred by the company’s unsecured creditors. It now seeks damages based on the company’s own losses. This change, the defendants argue, opens the door to new arguments about the duty of care, because the Livent proximity analysis requires the court to consider what the defendant undertook to do for the plaintiff and whether their conduct could have breached the scope of that undertaking.
[95] I agree with the defendants that Doyle Salewski has substituted one theory of damages for another in its re-amended pleading. I do not, however, agree that this change fundamentally alters the plaintiff’s theory as to why each of the defendants had a duty of care towards Golden Oaks. The allegations relevant to the relationship between each defendant and the company have not been amended in any significant way.
[96] Daniels raises another argument with respect to the claim in contract asserted against him. He contends that there are no allegations as to which terms of the contract with Golden Oaks were breached. This is inaccurate. Para. 70 of the Re-Amended Statement of Claim states that it was a term of the contract between the parties that Daniels was to perform the contract in good faith and in compliance with his obligations under the Mortgage Brokers, Lenders and Administrators Act, 2006, S.O. 2006, c. 29, and that Daniels breached the contract by providing false information on mortgage applications.
[97] In my view, para. 70 provides sufficient particulars of the contractual terms allegedly breached by Daniels. Even if it did not, I would decline to strike the paragraph, on the basis that this argument was not raised in these defendants’ earlier motion to strike, even though the same paragraph at issue appeared in the 2019 Statement of Claim.
[98] This lawsuit is now more than five years old. Despite efforts by counsel and the court to move it forward, it is still in the pleading stage. The earlier motions to strike were intended to address all of the defendants’ challenges to the statement of claim aside from the limitations arguments. In these circumstances, it is particularly important to discourage the approach to the pleadings motions taken here by the defendants.
[99] The defendants retain the right to move under r. 25.10, if they are of the view that they require further particulars of the acts and omissions relied on by the plaintiff. The defendants also retain the right to present a further motion to strike based on limitations arguments. They do not have the right to attack the Re-Amended Statement of Claim on grounds that they conceded in earlier motions, and which are the subject of findings on those motions.
(ii) Should para. 55 be struck?
[100] At para. 55, the plaintiff alleges that Landriault was involved in an attempt to conceal the real rate of interest payable by an individual named Line Lafond on a short-term loan she made to Golden Oaks. Landriault contends that this allegation should be struck from the Re-Amended Statement of Claim under r. 25.11, because Doyle Salewski sued Landriault in Small Claims court for a $2500 commission he received in relation to the Lafond loan.
[101] I do not accept this argument. Landriault’s receipt of a commission in relation to the Lafond transaction is not mentioned in para. 55. The allegations instead relate to his participation, as Golden Oaks’ solicitor, in an allegedly improper transaction.
[102] The plaintiff acknowledges that it cannot recover again what it obtained in its Small Claims action. The allegations in para. 55 are however relevant because they include material facts that would go towards establishing whether, in acting as the company’s lawyer, Landriault breached his legal duties to Golden Oaks.
[103] Finally, I note that the argument raised by Landriault with respect to para. 55 is, again, a challenge he could have made in his first motion to strike.
(iii) New claims for damages are time-barred
[104] The defendants take the position that some of the claims for damages in the Re-Amended Statement of Claim are entirely new and therefore time-barred. These include the claim for damages to compensate the company for the wages paid to Brunette, for example, and the claims for punitive and exemplary damages.
[105] Pursuant to case management directions issued in this litigation, the defendants may present a further motion to strike all time-barred claims. I will therefore not deal with this issue in this decision.
C. Disposition
[106] The McKillips’ motion to strike is granted, without leave to the plaintiff to make further amendments to its statement of claim.
[107] The other motions to strike are dismissed, along with Landriault’s r. 25.11 motion to strike para. 55 of the Re-Amended Statement of Claim.
[108] If the parties are unable to agree on costs, they shall each serve and file written cost submissions within the next 30 days. Each of these submissions shall not exceed five pages in length, but a cost outline and any relevant supporting documents may be attached. Each party may also serve and file reply submissions, which shall not exceed three pages in length, 15 days after the exchange of initial submissions. Since costs of the earlier motions to strike were reserved, the submissions should refer to the costs on both sets of motions. All submissions shall be filed electronically using the Civil Submissions Online portal.
[109] The parties shall schedule a case conference before me in the first quarter of 2021, to set a timetable for the next steps in this proceeding.
Justice Sally Gomery
Released: December 11, 2020
COURT FILE NO.: 15-66979
DATE: 2020/12/11
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Doyle Salewski Inc., in its capacity as Trustee in Bankruptcy of Golden Oaks Enterprises Inc. and Joseph Gilles Jean Claude Lacasse and Doyle Salewski Inc., in its capacity as Receiver and Manager of Golden Oaks Enterprises Inc. and Joseph Gilles Jean Claude Lacasse
Plaintiffs/Responding Parties
– and –
LORNE SCOTT, PATRICK BRUNETTE, ERIC LANDRIAULT, MATTHEW DANIELS, VERICO THE MORTGAGE ADVISORS INC., VINCENT HO, JOHN MCKILLIP and SUSAN MCKILLIP
Defendants/Moving Parties
DECISION ON FURTHER MOTIONS TO STRIKE
Justice Sally Gomery
Released: December 11, 2020
[^1]: R.R.O. 1990, Reg. 194. All defendants except for Vincent Ho are moving parties. Despite Mr. Ho’s lack of involvement, for simplicity’s sake I will refer to the moving parties as the “defendants”. [^2]: Doyle Salewski Inc. v. Scott, 2020 ONSC 682. [^3]: Doyle Salewski Inc. v. Scott, 2019 ONSC 5108. [^4]: Operation Dismantle Inc. et al v. The Queen et al, [1985] 1 S.C.R. 441; Hunt v. T & N plc, [1990] 2 S.C.R. 959 [Hunt]; Connor v. Scotia Capital Inc., 2018 ONCA 73 [Connor], at para. 3; Wright v. Horizons ETFS Management (Canada) Inc., 2019 ONSC 3827, at para. 70; Nash v. Ontario (1995), 27 O.R. (3d) 1 (C.A.), at p. 6. [^5]: Das v. George Weston Ltd., 2018 ONCA 1053, 43 E.T.R. (4th) 173 [George Weston], at para. 74; see also Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45 [Knight], at para. 22. [^6]: Hunt, supra note 2 at pp. 977-78; Connor, supra note 2 at para. 3. [^7]: Hollick v. Metropolitan Toronto (Municipality), 2001 SCC 68, [2001] 3 S.C.R. 158, at para. 25. [^8]: Hunt, supra note 2 at p. 979. [^9]: Burns v. RBC Life Insurance Company, 2020 ONCA 347, at para. 13. [^10]: Doyle Salewski Inc. v. Scott, 2019 ONSC 5108. [^11]: 2017 SCC 63, [2017] 2 S.C.R. 855. [^12]: First Decision, at para. 42. [^13]: [1946] O.W.N. 701, at p. 703. [^14]: [1951] O.W.N. 499. [^15]: 1973 (ON SC). [^16]: Horii v. Canada, 2000 (FC), at paras. 12 to 14; Harris v. R., 2001 FCT 758, at para. 23; Tribar Industries Inc. v. KPMG LLP, 2009 (ON SC), at para. 29; and Ernst & Young Inc. v. Xinduo, 2017 ONSC 5911, at paras. 10 to 12. [^17]: Tribar Industries, at para. 23. [^18]: Ward v. Dana G. Colson Management Ltd., [1994] O.J. No. 5339 (Div. Ct.), at para. 12; aff'd [1994] O.J. No. 2792 (C.A.); McQuillan v. Native Inter-Tribal Housing Co-Operative inc, 1998 (ONCA); Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc., 2016 ONSC 3235, at paras. 37 to 39; Guergis v Hamilton, 2015 ONSC 4915 at paras. 13 to 15.