Court File and Parties

Court File No.: CV-17-577665-00B1 Date: 2021-03-01 Ontario Superior Court of Justice

Re: BIRCHCLIFFE CORE-HARBOUR INC., Plaintiff -and- STELLA PINNOCK, et al., Defendants -and- JOHNNY LONGO REAL ESTATE LTD., Third Party -and- ROBERT M. MICHELI et al., Fourth Party

Before: F.L. Myers J.

Counsel: Osborne G. Barnwell, for the Defendants Stella and Stainton Pinnock Alexander Melfi, for Mr. Micheli et al.

Heard: February 22, 2021

Endorsement

[1] Mr. Micheli and his law firm move to strike out and dismiss the Pinnocks’ fourth party claim against them for disclosing no reasonable cause of action and for being an abuse of process.

[2] For the reasons that follow, I strike out the fourth party claim but with leave for the Pinnocks to amend. Try as I might, I have not found a cause of action that will lie on the facts pleaded. But there is no prejudice that cannot be compensated in costs in allowing the defendants to try one last time subject to the limitations discussed below.

Procedural Who’s Who

[3] In 2016, the Pinnocks owned a vacant property in Toronto.

[4] In 1989, the Pinnocks borrowed $250,000 from the third party Johnny Longo Real Estate Ltd. They had granted a mortgage to the lender at the time. Interest accrued under the mortgage at 12% per year. The Pinnocks made no payments on the mortgage debt from 1989 to 2016.

[5] By agreement dated May 11, 2016, the Pinnocks sold their property to the plaintiff Birchcliffe for $500,000. To close the sale, the Pinnocks required a discharge of the mortgage from Johnny Longo.

[6] Mr. Micheli and his firm acted for the mortgage lender Johnny Longo. He may be a relative of Mr. Longo and he may be a directing mind of the lender corporation.

[7] As discussed in the facts below, ultimately, the Pinnocks did not obtain a discharge from the mortgage lender. Instead, Johnny Longo sold the property to Birchcliffe under power of sale for approximately $687,000.

[8] Birchcliffe sued the Pinnocks for the extra $187,000 that it had to pay to buy the property from Johnny Longo when the Pinnocks could not convey clear title as promised.

[9] The Pinnocks commenced third party proceedings against their mortgage lender Johnny Longo claiming it wrongly caused the failure of their sale.

[10] Johnny Longo counterclaimed against the Pinnocks for approximately $1.5 million, being the alleged mortgage principal and interest accrued since 1989 net of the sale proceeds that it received on its sale to Birchcliffe.

[11] The Pinnocks have commenced this fourth party claim against Mr. Micheli and his firm seeking to hold them liable for the full amount of their mortgage claimed by the Johnny Longo in its counterclaim to the Pinnocks’ third party claim and for damages.

[12] The motion before the court is to determine whether the Pinnocks, as owners of the house, have stated a claim against Mr. Micheli, the lawyer for the mortgage lender who sold the house under power of sale.

The Facts

[13] The Pinnocks were represented by a lawyer on the sale to Birchcliffe.

[14] When initially contacted by the Pinnocks’ real estate lawyer, Mr. Micheli made a comment reflecting recognition that so much time had passed during which interest rates had fallen that Johnny Longo would not charge full interest on the old mortgage. He said that he would recommend a settlement of $505,000.

[15] As the sale price was only $500,000, the discounted mortgage cost floated by Mr. Micheli for the mortgage lender was still more than the entire proceeds. And that is before considering real estate commissions and property tax arrears that would decrease the net proceeds available to the Pinnocks to pay the mortgage.

[16] The Pinnocks did not agree to pay $505,000.

[17] It is agreed that Birchcliffe was buying the Pinnocks’ property as the last piece of property in a land assembly. The Pinnocks also had other dealings with Birchcliffe on other pieces of land in the assembly.

[18] Mr. Micheli expressed a concern to the Pinnocks’ lawyer that they had undersold the mortgaged land to Birchcliffe to leave less proceeds for the mortgagee. Perhaps they were making up the difference on another piece of property. Mr. Micheli withdrew the $505,000 offer and demanded that the Pinnocks pay Johnny Longo approximately $2 million under the mortgage including 17 years of interest at 12% compounded throughout the term.

[19] In trying to obtain a discharge of the mortgage from Johnny Longo, the Pinnocks and their lawyer did not take the position that the 1989 mortgage was no longer enforceable under the Real Property Limitations Act, RSO 1990, c L.15. Neither did they come to court for a ruling on the amount, if any, due under the mortgage.

[20] Instead, the Pinnocks provided statutory declarations to Mr. Micheli to try to show that they had no assets. In those statutory declarations, they acknowledged their indebtedness under the mortgage (thereby reviving the limitation period arguably).

[21] The Pinnocks straddle two inconsistent alternatives when pleading this piece of the case. Mr. Barnwell submits that the Pinnocks could not afford to pay the claims of the mortgagee. But he also submits that had the mortgagee stuck with the $505,000 redemption price first offered, because they had other dealings with Birchcliffe in the land assembly, perhaps the Pinnocks could have worked with that offer and found a way to close their deal. The second point undermines the first.

[22] For the purposes of this pleadings motion, I accept that possibility at face value. However, foreshadowing, it runs into another problem below.

[23] Mr. Micheli obtained an appraisal that showed the land to be worth anywhere from $320,000 to $520,000. The Pinnocks allege that armed with the appraisal information it was bad faith for Mr. Micheli to continue to assert that they had undersold the land to Birchcliffe. He should have gone back to the offer of $505,000. They ignore that Johnny Longo re-sold the same land to the same buyer for an additional $187,000 or about 37%. But, again, the issue at this stage is whether there is a legal basis for a claim and not the strength of the claim.

[24] Without telling the Pinnocks, Mr. Micheli shared their statutory declarations with Birchcliffe. He advised the buyer that the Pinnocks were unlikely to be able to obtain a mortgage discharge. He proposed therefore that Johnny Longo proceed with a power of sale and sell the land to Birchcliffe if (when) the Pinnocks could not close their sale.

[25] The Pinnocks take exception to the disclosure of their stat decs. Mr. Micheli asked Birchcliffe to keep them confidential. It is not clear to me that the disclosure was unlawful. But the Pinnocks allege that it demonstrates bad faith and, effectively, a conspiracy between Johnny Longo and Birchcliffe or unlawful interreference with their economic interests as vendors under their agreement of purchase and sale.

[26] Mr. Micheli delivered a notice of sale under Johnny Longo’s mortgage. He served the notice at the vacant mortgaged property. Serving the notice in the manner required by the mortgage was perfectly proper. But Mr. Micheli did not send a copy to the Pinnocks or their lawyer. That was deceptive at best.

[27] When the notice period under the notice of sale expired, Johnny Longo agreed to sell the property to Birchcliffe. That transaction closed leaving the Pinnocks unable to close their deal and with no recovery.

The Birchcliffe Judgment

[28] To add insult to injury, Birchcliffe sued the Pinnocks for the $187,000 extra that it had to pay to Johnny Longo to buy the property.

[29] The Court of Appeal held that this was the proper measure of damages and awarded the sum claimed to Birchcliffe. [1]

[30] At first instance, the Pinnocks argued that Birchcliffe was not entitled to claim against them because of its unlawful conduct with the mortgage lender and Mr. Micheli’s misconduct as described above. [2] They alleged in their factum that Birchcliffe was in a conspiracy with Mr. Micheli and that they had engaged in bad faith conduct with the goal to “predominantly cause injury to the Pinnocks”. [3]

[31] Mr. Micheli was not yet a party to the case. But he was counsel acting for Johnny Longo in the third party claim at the time. He was on notice of the Pinnocks’ allegations and he was engaged in the proceeding.

[32] The motion judge found:

[57] The Pinnocks had negative equity in the property and thus had no interest to sell to Birchcliffe. Therefore, they had no ability to reserve a benefit to themselves by not delivering title to Birchcliffe.

[62] In making this statement, [Birchcliffe] acknowledges that the Pinnocks are not the real vendors of the land. If Birchcliffe wished to purchase the property, it was going to have to deal with the mortgagee, which was the only entity that could deliver clear title…

[69] The Pinnocks submit that [Birchcliffe] and Mr. Micheli engaged in a conspiracy to interfere in the contractual relations between Birchcliffe and the Pinnocks. I do not find this to be the case. I do find that the obvious tactic to ensure that the Pinnocks did not have actual notice of the power of sale under mortgage was deceptive on the part of both Birchcliffe and the mortgagee. However, I do not find Birchcliffe liable for actionable deceit.

[70] The Pinnocks were never, realistically, in a position to provide clear title to Birchcliffe. The actions of the solicitors for Birchcliffe and the mortgagee, respectively, while deceptive, were not the cause of the Pinnocks’ failure to close the transaction. Given the Pinnocks’ negative equity in the property and the mortgagee’s desire to ensure the property was sold at its fair market value, the true vendor of the property was going to be the mortgagee. [Emphasis added]

[33] The Court of Appeal expressly approved of the holding in para. [70] and rejected the Pinnocks’ submission that..

…the appellant’s conduct, especially in respect of its dealings with the mortgagee in the months prior to the eventual termination of the agreement, was improper and caused the respondents to be unable to close the transaction with the appellant under the terms of the Agreement of Purchase and Sale. [Emphasis added]

[34] It takes two to conspire. The principal feature of a conspiracy is an agreement between two people. Although Mr. Micheli was not a party, the finding that Birchcliffe did not conspire with Mr. Micheli, precludes the Pinnocks from claiming that Mr. Micheli conspired with Birchcliffe in this action.

[35] In addition, the Pinnocks are bound by the findings that they had no equity in the property and it was their lack of an equity, rather than the conduct of the lawyers for Birchcliffe and Mr. Micheli, that caused their inability to close the sale. The Pinnocks had no equity in the property to sell. They could not obtain a discharge. There were therefore no proceeds available to them. A sale was going to have to be conducted by the mortgagee.

[36] The doctrine of abuse of process prevents a party from re-litigating issues that have already been finally determined against them. It does not require that the same parties be before the court. Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63. For the Pinnocks to claim in this action that Mr. Micheli’s conduct caused them to be unable to close their sale would be asking for a ruling that is directly inconsistent with the ruling of the motion judge as upheld by the Court of Appeal. It is an impermissible collateral attack on the prior decision.

[37] Mr. Barnwell submits that the Pinnocks have been mistreated and need a remedy. However, he cannot say that the Pinnocks had any reason to under-play the causation issue in the prior litigation. It was the centrepiece of the motion and the appeal. He cannot say that the stakes were too small in the prior motion to generate a robust proceeding as this is the same transaction at issue. The prior proceeding was robustly argued up to the Supreme Court of Canada.

[38] Mr. Barnwell argues that since Mr. Micheli was not a party in the prior litigation, he is not being vexed or abused by answering for his misconduct now. However, the doctrine of abuse of process is not just about protecting litigants from multiple claims. It also protects the integrity of the court’s processes. It would be inappropriate to allow a case to proceed in which the Pinnocks seek a decision that is inconsistent with the decisions that already bind them. To proceed in that manner would deprive judgments of their meaning and force. It would encourage serial litigation of the same issues.

[39] If the Pinnocks have a right of action, I do not see fairness requiring that it be found by re-litigating issues on which they have already been unsuccessful. See: CUPE, at para. 53.

[40] Therefore, any cause of action premised on a conspiracy between Mr. Micheli and Birchcliffe or that requires proof that Mr. Micheli’s actions caused the Pinnocks’ inability to close the sale to Birchcliffe is now foreclosed to them. So too is any claim that they had equity in the mortgaged property when they agreed to sell it. I find that it is an abuse of process to re-argue these findings.

The Fourth Party Claim

[41] Unfortunately, the fourth party claim does not set out the causes of action on which the Pinnocks rely in a focused manner. One needs to search for snippets.

[42] I recognize that a claim is to be read generously so that technical drafting deficiencies do not preclude a valid cause of action from being litigated. That is among the reasons that I am granting leave to amend. Perhaps, with some better focus on the specific elements of known causes of action, the Pinnocks will be able to plead something that remains open to them.

[43] The fourth party claim sets out the following prayer for relief (plus interest and costs):

1. Stella Pinnock and Stainton Pinnock ("The Pinnocks"), claim against the Fourth Party, Robert M. Micheli & Gallagher & Mckenna as follows: (i) Full indemnity and contribution for any damages awarded in the Counterclaim, if any, brought by Johnny Longo Real Estate Ltd. against Stella and Stanton Pinnock on the basis of Bad Faith and interference with contractual relations; (ii) All legal cost incurred by the Pinnocks in defending the main action against the Plaintiff at both Superior Court of Justice and the Ontario Court of Appeal and also, seeking leave to the Supreme Court of Canada; (iii) $350,000 for misrepresentation, bad faith, negligence and injury to reputation. (iv) $500,000 as Punitive damages;

[44] The claim over in para. (i) is a non-sequitur. It seeks contribution and indemnity from Mr. Micheli for Johnny Longo’s claim under the Pinnock’s mortgage. If the mortgage claim is barred or Johnny Longo seeks too much interest, the claim will be reduced to the proper amount in the counterclaim brought by Johnny Longo. There is no basis in law for Mr. Micheli to be liable for the current value of the Pinnock’s loan.

[45] Mr. Barnwell also relies upon the provisions of the Negligence Act and specifically the right to claim over against anyone whose fault or neglect caused or contributed to loss. While a claim under that statute does not require proof that a third party owed a duty of care to the plaintiff, it still requires the plaintiff to have a cause of action against someone else that can then be the basis of contribution or indemnity.

[46] Mr. Micheli’s duty of care was owed to Johnny Longo. As noted above, if the mortgage is valid, it is the Pinnock’s claim to pay. No breach of duty by Mr. Micheli to Johnny Longo will bear on that. If the mortgage is ruled invalid, then there is no need for a claim over. In other words, the Negligence Act has no bearing on the Pinnocks’ claims.

[47] Bad faith is not a cause of action. If the Pinnocks refer to bad faith as an organizing principle of the law of contract under Bhasin v. Hrynew, 2014 SCC 71, there is no contract pleaded or available on the facts between the Pinnocks and Mr. Micheli.

[48] Damages for injury to reputation and punitive damages can at times be recoverable in a claim. They are not recognized causes of action however. That is, one cannot sue for injury to reputation or punitive damages on their own without claiming a recognized basis on which the law entitles the plaintiff to make a claim (breach of contract, negligence, etc.).

[49] The claim mentions the word defamation once. There is no serious attempt to plead the requisite elements of libel or slander in the claim.

[50] The plea of the tort of wrongful interference with economic relations is an abuse of process. For the Pinnocks to show that Mr. Micheli wrongfully interfered in their contract with Birchcliffe, they need to show that they could not close due to Mr. Micheli’s tortious misconduct i.e. that the lawyer’s conduct rather than their lack of equity caused inability to close their sale to Birchcliffe. The Pinnocks already failed on that very plea and it not longer remains open to them.

[51] The misrepresentation and negligence claims fare no better. They are based on Mr. Micheli telling the Pinnocks that Johnny Longo claims $2 million under the mortgage ($1.5 million after the proceeds of sale are deducted). The Pinnocks had a lawyer on the transaction.

[52] There is no basis pleaded for Mr. Micheli to have owed a duty of care to the mortgagor to limit the amount claimed by the mortgagee. Neither is there a basis for reasonable reliance by the Pinnocks on Mr. Micheli. See: 9383859 Canada Ltd. v. Saeed, 2020 ONSC 4883, at paras. 27 to 36. If they disagreed with the mortgagee’s assertion, a courtroom was available to them to compel a discharge before closing.

[53] The Pinnocks do not plead that they took any step in reliance upon Mr. Micheli’s communication of the mortgage claim that caused them loss.

[54] Both negligence and negligent misrepresentation require proof of causation. These claims therefore are an abuse of process as well.

[55] At best, Mr. Barnwell submits that had Mr. Micheli not made the $2 million claim, there was a chance that the Pinnocks could have worked with the prior $505,000 offer that they had rejected because it was for more than the total proceeds of sale. I know of no basis to require a party to offer a particular settlement. Nor is one pleaded. Moreover, if a claim for “loss of chance” lies, (which is also not pleaded) it has to survive the finding by the motion judge, upheld by the Court of Appeal, that the Pinnocks had no equity in the property.

[56] The bulk of the claim repeats in various different ways, the Pinnocks’ blame on Mr. Micheli for causing the transaction not to close.

[57] For example, paragraph 12 of the claim provides:

12. The basis of the Fourth Party claim is bad faith, misrepresentation, negligence and injury to reputation which all led to the Pinnocks failure to close the real estate transaction. These tortious behaviors are attributed to Mr. Micheli and his law firm. The allegations below deal with bad faith as demonstrated by the total lack of transparency, misrepresentation and negligence in the amount said to be owing and overall, Micheli's and his firm breach of professional standards of the legal profession to which he is bound. [Emphasis added]

[58] Paragraph 27 of the claim begins:

27. There were two significant facts which caused the matter not to close as anticipated by the Pinnocks. [Emphasis added]

[59] The two facts then pleaded relate to Mr. Micheli claiming more for the mortgage debt that the Pinnocks claim was proper.

[60] Paragraph 52 of the claim provides:

52. They further state that BUT FOR Micheli's gross negligence, his aggressive and contemptuous conduct towards them, and his failure to adhere to his professional obligations, they would have been able to provide clear title.

[61] All of these claims are inconsistent with the prior holdings and therefore amount to an abuse of process.

[62] The fourth party claim is a pleading in search of a cause of action. Mr. Barnwell submits that Mr. Micheli should not be entitled to get away with his wrongdoing toward the Pinnocks. All he has to do to entitle the Pinnocks to proceed with a claim for legal relief is to plead a concise statement of material facts that sets out a recognized cause of action. Especially with the causation holding already made, I cannot see one. But, as noted above, I see no prejudice in allowing them to try one more time with the guidance provided in this decision.

Outcome

[63] The fourth party claim is struck out with leave to amend by delivering a fresh as amended fourth party claim by April 30, 2021. The new pleading is to consist of concise allegations of material facts that set out one or more valid causes of action and may not contain any allegation that is inconsistent with the findings - made against the Pinnocks in the Birchcliffe claim or in this endorsement.

[64] The fourth parties may deliver cost submissions no later than March 8, 2021. The Pinnocks may deliver cost submissions no later than March 15, 2021. Both parties shall deliver Costs Outlines. In addition, the parties may deliver copies of any offers to settle on which they rely. Submissions shall be no longer than three pages (not counting the Cost Outlines and offers to settle).

[65] All costs material is to be filed through the Civil Submissions Online portal and shall also be sent to me in searchable PDF format as an attachment to an email to my Judicial Assistant. No case law or statutory material is to be submitted. References to case law and statutory material, if any, shall be embedded in the parties’ submissions as hyperlinks.

F.L. Myers J. Date: March 1, 2021

[1] Birchcliffe Core-Harbour Inc. v. Pinnock, 2019 ONCA 417. The Pinnock’s application for leave to appeal to the Supreme Court of Canada was dismissed at Stella Pinnock, et al. v. Birchcliffe Core-Harbour Inc..

[2] Birchcliffe Core-Harbour Inc. v. Pinnock, 2018 ONSC 5805

[3] I note that I am relying on evidence here as it deals with Mr. Micheli’s argument that the claim against him is an abuse of process due to the findings already made in Birchcliff’s judgment. I understand that the reasonableness of the causes of action pleaded must be assessed on the allegations in the fourth party claim alone.